CMHC calls Canada’s real estate market overheated and extremely vulnerable

The latest report by Canada Mortgage and Housing Corporation (CMHC) shows that a strong mix of real estate price growth, the on-going overvaluation, and stagnant labour incomes has led the national housing market to a high degree of vulnerability.

“Such a high level of vulnerability is mostly caused by problematic conditions in several local real estate markets in Ontario and Eastern Canada,” – CMHC’s report says.

According to the Corp., historically low interest rates, government fiscal support programs, and the mass vaccination against COVID-19 have provided improved employment prospects, purchasing power, and disposable income levels during the first half of this year.

Nevertheless, CMHC says these improvements are not enough to explain the latest significant prices growth. For instance, the average home price was up by 13.3% to $663,500 in August, the Canadian Real Estate Association says.

“Extremely strong demand and home price growth seen over the course of the pandemic may have led to increased expectations of continued price growth in several local real estate markets in Ontario and Eastern Canada,” – noted Bob Dugan, chief economist of CMHC. “As a result, we’ve seen more buyers entering the market than it was expected.”

CMHC says the peak of sales activity reported in the first quarter of 2021, has transformed into a trend of demand exceeding supply sharply.

Although home sales have moderated since that period, the issue of restrained supply remains. “We can’t see an unusually high level of vacant, newly built, and unsold housing units. The rental market is facing the same issue,” – CMHC noted.

The level of vulnerability is different across the country, with higher results seen in Ontario and certain parts of Atlantic Canada.

According to CMHC, the Greater Toronto Area, Hamilton, Ottawa, Halifax, and Moncton showed a high degree of vulnerability in Q2. These markets saw significant demand-supply imbalances leading to fast prices growth.

Victoria, Calgary, and Edmonton reported moderate market vulnerability, as the supply there was mostly enough to cope with the local demand.

Meanwhile, Vancouver reduced its vulnerability from moderate to a low level. CMHC explains it by slower prices growth, “as the pace of home sales there has slowed down. Homeowners have listed their properties in larger numbers than usual, thus reducing the competition among homebuyers.”

The lowest level of vulnerability was reported in Saskatoon, Regina, Winnipeg, and Quebec.