Canadian housing market still highly vulnerable as overvaluation eases in Toronto

The Canada Mortgage and Housing Corporation released its quarterly Housing Market Assessment, reporting that the country’s housing market overall is still highly vulnerable, mostly due to price acceleration and overvaluation. 

"We are seeing overvaluation pressures unwinding in Toronto and Victoria, despite the fact that Canada's overall vulnerability remains high. Nationally, overheating and overbuilding remain low,” says Bob Dugan, Chief Economist, CMHC. “It should also be noted that price acceleration may be downgraded in upcoming reports which would lead to Canada's overall vulnerability moving from high to moderate, provided other HMA factors do not change."

Vancouver, Victoria, Toronto, and Hamilton are all at high risk due to moderate overheating, price acceleration, and overvaluation. None of these markets are at risk of overbuilding. The markets at risk of overbuilding include Edmonton, Calgary, Saskatoon, Regina, Winnipeg, and St. John’s. 

The perfectly balanced, completely low risk markets include Ottawa, Montreal, Quebec, Moncton, and Halifax (and St. John’s is overall low risk despite the moderate risk of overbuilding). 

The one good sign is that overvaluation in Toronto shifted from high risk to moderate with home prices shifting to levels more in line with market fundamentals like population growth, personal disposable income, and interest rates. In other words, home prices are dropping. 

"In the Greater Toronto Area (GTA), overvaluation has changed from high to moderate due to the gaps between actual house prices and price levels estimated by fundamentals narrowing,” says Dana Senagama, Manager, Market Analysis, Market Insights (Central) CMHC. “Year-over-year growth in the average house price and real personal disposable income was modest in the third quarter of 2018 and was outpaced by economic and demographic factors, such as full-time employment and the young-adult population, which grew by 3.68 %."

CMHC definitions of problematic conditions: