You may have heard about the recent cooldown hitting the previously and almost ever-hot markets of Toronto and Vancouver. The Canada Mortgage and Housing Corporation is warning that this recent news is no magical fix to the Canadian real estate landscape.
The overpriced cities of Toronto and Victoria have eased, but CMHC is still giving the national housing market a “vulnerable assessment” for the tenth consecutive quarter, according to Financial Post.
Contributing factors to the still “vulnerable” evaluation are a number of continued imbalances in the housing market concerning: “overbuilding, overvaluation, overheating and price acceleration when compared to historical averages.”
Though this is still the national perception, CMHC changed both Toronto and Victoria’s assessment from high to moderate when it looked at respective population growths, personal disposable income and interest rates in the regions.
Surprisingly, Hamilton, Ont.’s vulnerability remains as high as Vancouver’s thanks to continually high property prices.
If overbuilding and overheating remain low in certain markets, the national vulnerability could be downgraded in future quarters.
“In Toronto, we’ve seen an easing of the pressures of overvaluation because house price growth has moderated and so the level of prices isn’t increasing as quickly but fundamentals are still growing at a strong rate so there has been a narrowing of that gap between actual house prices and fundamentals,” said CMHC chief economist Bob Dugan.
“Overvaluation doesn’t really have anything to do with affordability,” said Dugan. “In Toronto, you can have prices in line with fundamentals but that doesn’t mean that affordability isn’t a challenge. What it means is that there is a relationship between these fundamentals and prices that can explain the level of prices.”
National home sales were down 19% between December 2017 and December 2018, according to the Canadian Real Estate Association which marked the “weakest annual sales” reported since 2012.
Toronto and Vancouver markets have cooled thanks to 2018’s implementation of the mortgage stress test, an item the Toronto Real Estate Board recently urged the federal government to “revisit”.