New CMHC market assessment sees “moderate degree of vulnerability” in Canadian housing

Clayton Jarvis
Mortgage Broker News

Wednesday morning, Canada Mortgage and Housing Corporation released its most recent Housing Market Assessment for the third quarter of 2020.

“Although the unprecedented income supports from governments provided temporary relief, the COVID-19 crisis negatively affected the level of permanent disposable income available to households,” said Bob Dugan, CMHC’s chief economist. “Along with the weakening of other drivers of the housing market, overvaluation imbalances increased further or started to emerge in several markets in the third quarter of 2020.”

Be that as it may, the HMA, which examines the level of vulnerability in the country’s major real estate markets, determined that the raging sales activity seen in Q3, despite occurring without the support of robust employment, steady immigration, or economic certainty of any kind, has had a minimal impact on the stability of Canada’s housing markets. Compared to CMHC’s second quarter assessment, only four Census Metropolitan Areas are currently considered more vulnerable overall than they were in September: Regina, Hamilton, Montreal, and Moncton.

In assembling the HMA, CMHC considers four factors: overbuilding, overvaluation, price acceleration, and overheating.

Moderate risk from overheating: Hamilton, Ottawa, Montreal, Quebec City, Moncton

Moderate risk from price acceleration: Hamilton, Ottawa, Montreal, Moncton

Moderate risk from overvaluation: Canada, Victoria, Regina, Hamilton, Halifax

High risk from overvaluation: Moncton

Moderate risk from overbuilding: Edmonton, Calgary, Regina

Six markets received overall low vulnerability scores – Edmonton, Calgary, Saskatoon, Winnipeg, Quebec City and St. John’s – while only two, Moncton and Hamilton, were deemed highly vulnerable. CMHC said the remaining seven CMAs studied, and Canada as a whole, are facing moderate levels of vulnerability.

Despite receiving low vulnerability scores across all four metrics, both Toronto and Vancouver were deemed moderately vulnerable overall. In Toronto’s case, CMHC’s Dana Senagama told Mortgage Broker News that the city’s evaluation reflects the persistence of the city’s housing challenges even though certain technical thresholds were not crossed in Q3.

“Although you are seeing, for this particular quarter, all those indicators showing as green, they were, at one particular time over the course of the last two years or more, in the more vulnerable category,” Senagama said, adding that CMHC is paying particularly close attention to overvaluation in the GTA.

Eric Bond, CMHC’s senior specialist in Vancouver, said the city’s moderate vulnerability assessment was also impacted by its market’s recent performance. One item that has CMHC concerned is the region’s high level of indebtedness, which ranks among the highest in the country.

“While low interest rates are currently supporting housing demand and encouraging that, the uneven impacts of the pandemic mean that debt will affect different households differently,” Bond said. “That’s a vulnerability we wanted to take into account for Vancouver.”

With the HMA built around subjective concepts like “high vulnerability” and colour coding, consumers looking at an individual market’s assessment may wonder what exactly to do with the information in front of them. Dugan said the intent of the report is to promote stability in the market by making Canadians aware of potential issues in the communities in which they may be considering purchasing a home.

“Ultimately, we’re trying to signal imbalances to people to improve the decisions that they make,” Dugan said. “If, for example, there were overbuilding in the market that could lead to price declines, it’s a signal to people that there is some risk around prices in the market. It’s also a signal to builders that maybe instead of adding to inventories sell from the existing inventories you have on hand.”

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