Investing in the busy real estate market of southern Vancouver Island and surrounding areas. New listings and sold signs can be seen around Victoria, B.C., on June 1, 2018. THE CANADIAN PRESS/Chad Hipolito

Housing market ‘moderately’ vulnerable amid potential overvaluation of homes: CMHC

CMHC says there was a ‘moderate degree of vulnerability’ in the housing market as of the end of June

Canada’s housing market experienced overvaluation in some pockets of the country in the spring amid the COVID-19 pandemic, Canada Mortgage and Housing Corp. said in a new report released on Monday.

In cities such as Victoria, Moncton and Halifax, there was a widening gap between the selling price of houses and the price economists would expect, based on population growth, disposable income, mortgage rates and employment, the Crown corporation said.

That data comes from the agency’s housing market assessment, which gives the housing market a grade based on whether homebuilding and rising prices could ultimately affect the stability of the economy. The report doesn’t look at whether homes are affordable — but does try to inform homebuyers and lenders on what would happen to the equity in their homes if a sudden economic shock led to a spike in unemployment, for instance.

CMHC says there was a “moderate degree of vulnerability” in the housing market as of the end of June, the same grade the market received in February.

The preliminary report shows the slowdown during the height of COVID-19 lockdown measures, but doesn’t include the record-setting sales in July and August — nor does the data reflect the ending of government income supports and mortgage payment deferrals.

Because the report’s analysis of home price overvaluation relies heavily on analyzing Canadians’ income, the authors suggested that the risk might be underestimated.

“The unprecedented income supports from Canadian governments to households (such as the Canada Emergency Response Benefit and the Employment Insurance Benefits) provide relief to individuals experiencing financial hardship due to the COVID-19 crisis. These sources of income are, however, temporary,” said the report.

CMHC economist Bob Dugan said that — despite giving the housing market a steady grade this summer — CMHC still expects a severe decline in home sales and in new construction to come as the economy recovers from the pandemic.

“I don’t think we are out of the woods yet. I certainly hope our forecast is wrong,” said Dugan in a phone call with reporters.

In May and June, CHMC had given a grim outlook for the housing sector, including a steep decline in housing prices. Although realtors have reported record-high home sales and prices in July and August, Dugan said he is not convinced that there is a “sustainable basis” for the current homebuying demand.

“I’m not confident yet in walking away from some of our predictions, given the tremendous amount of risk to the economy and housing market,” Dugan said.

While Canada’s housing market as a whole does not show signs of overheating, outsized price acceleration or overbuilding, some regions do pose moderate risks, the report said.

Winnipeg, Edmonton and Calgary are areas where there is “moderate” risk of overbuilding, CMHC said, looking at both second-quarter data and monthly inventories from July and August.

In Edmonton, there has been increased construction of detached homes despite weak employment in the oil sector, while in Winnipeg, incoming migration has slowed, CMHC analysts said. Calgary, meanwhile, has seen row houses and townhomes sit empty as cost-conscious buyers opt for condos instead — leaving the city approaching its 2001 record-high of empty new builds.

The report also gave Canada a “low” risk of price acceleration, but noted that prices are rising moderately more quickly in Ottawa and Montreal. In Montreal, the supply of homes for sale was at a 16-year low, pushing prices closer to “problematic” levels.

The Ottawa and Montreal housing markets are also at a moderately higher risk of overheating, as are Hamilton, Ont., Quebec City and Moncton, CMHC said. Overheating happens when there is more demand to buy homes than there are listings.

“The high economic uncertainty and temporary public health and workplace safety restrictions placed on property showings caused a greater number of sellers to exit the market than buyers,” the report noted.

Anita Balakrishnan, The Canadian Press

Like us on Facebook and follow us on Twitter.

Want to support local journalism? Make a donation here.

Real estate

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

B.C. Liberal leader Andrew Wilkinson, B.C. NDP leader John Horgan and B.C. Greens leader Sonia Furstenau. (Black Press Media)
OPINION: Examining preliminary results from the 2020 BC Election

Some thoughts to ponder as British Columbia awaits the final results from mail-in ballots

Your Columbia River Revelstoke candidates; Nicole Cherlet (NDP); Samson Boyer (Green) and Doug Clovechok (BC Liberal). The polls are closed and ballots being counted. (File photo)
BC VOTES: Clovechok preliminary winner with 52 per cent of the vote

35 of 77 polls have reported and The Canadian Press is calling Clovechok winner

NDP headquarters on election night, Oct. 24, 2020. (Katya Slepian/Black Press Media)
ELECTION 2020: Live blog from B.C. party headquarters

BC NDP projected to win majority government – but celebrations will look different this election

B.C. Green Party leader Sonia Furstenau outlines her party's climate action platform at Nanaimo's Vancouver Island Conference Centre earlier this month. (News Bulletin file photo)
Green leader Furstenau declared victor in her home riding on Vancouver Island

Cowichan Valley voters elect freshly minted party leader for her second term

John Horgan has been re-elected the MLA for Langford-Juan de Fuca. (File-Black Press)
Horgan trounces challengers to be re-elected in his Vancouver Island riding

MLA has represented constituency of Langford-Juan de Fuca and its predecessors since 2005

NDP Leader John Horgan celebrates his election win in the British Columbia provincial election in downtown Vancouver, B.C., Saturday, Oct. 24, 2020. THE CANADIAN PRESS/Jonathan Hayward
Horgan celebrates projected majority NDP government, but no deadline for $1,000 deposit

Premier-elect says majority government will allow him to tackle issues across all of B.C.

FILE – Prime Minister Justin Trudeau greets Premier John Horgan during a press conference at the BC Transit corporate office following an announcement about new investments to improve transit for citizens in the province while in Victoria on Thursday, July 18, 2019. THE CANADIAN PRESS/Chad Hipolito
Trudeau congratulates Horgan on NDP’s election victory in British Columbia

Final count won’t be available for three weeks due to the record number of 525,000 ballots cast by mail

Comedic actor Seth Rogen, right, and business partner Evan Goldberg pose in this undated handout photo. When actor Seth Rogen was growing up and smoking cannabis in Vancouver, he recalls there was a constant cloud of shame around the substance that still lingers. Rogen is determined to change that. (Maarten de Boer ohoto)
Seth Rogen talks about fighting cannabis stigma, why pot should be as accepted as beer

‘I smoke weed all day and every day and have for 20 years’

Provincial Green Party leader Sonia Furstenau speaks at Provincial Green Party headquarters at the Delta Victoria Ocean Pointe in Victoria. (Arnold Lim / Black Press)
VIDEO: Furstenau leads BC Greens to win first riding outside of Vancouver Island

Sonia Furstenau became leader of BC Greens one week before snap election was called

NDP Leader John Horgan elbow bumps NDP candidate Coquitlam-Burke Mountain candidate Fin Donnelly following a seniors round table in Coquitlam, B.C., Tuesday, October 20, 2020. THE CANADIAN PRESS/Jonathan Hayward
Horgan, NDP head for majority in B.C. election results

Record number of mail-in ballots may shift results

Join Black Press Media and Do Some Good

Pay it Forward program supports local businesses in their community giving

The Canadian border is pictured at the Peace Arch Canada/USA border crossing in Surrey, B.C. Friday, March 20, 2020. More than 4.6 million people have arrived in Canada since the border closed last March and fewer than one-quarter of them were ordered to quarantine while the rest were deemed “essential” and exempted from quarantining. THE CANADIAN PRESS/Jonathan Hayward
Majority of international travellers since March deemed ‘essential’, avoid quarantine

As of Oct. 20, 3.5 million travellers had been deemed essential, and another 1.1 million were considered non-essential

Canada’s Chief Public Health Officer Theresa Tam responds to a question during a news conference Friday October 23, 2020 in Ottawa. Canada’s top physician says she fears the number of COVID-19 hospitalizations and deaths may increase in the coming weeks as the second wave continues to drive the death toll toward 10,000. THE CANADIAN PRESS/Adrian Wyld
Canada’s top doctor warns severe illness likely to rise, trailing spike in COVID-19 cases

Average daily deaths from virus reached 23 over the past seven days, up from six deaths six weeks ago

Most Read