Residential Mortgage Quarterly Review – Q4 2016

Feb 6, 2017, 11:33 AM by Maria Broekhof
In its latest quarterly Housing Market Assessment Canada Mortgage and Housing Corporation continues to warn of overheating and is maintaining its Red Alert status on the Canadian housing market.

This is the second quarter in a row that the federal housing agency has maintained the rating due to overvaluation and price acceleration.  In particular CMHC points to Vancouver, Victoria, Toronto and Hamilton as markets where price growth appears to be driven by speculation.  The agency says price increases are out pacing economic fundamentals such as migration, employment and wage growth.

CMHC says rapidly rising prices in the urban centres are putting pressure on surrounding markets.  In the case of Toronto that pressure is being felt as far away as the Niagara Region.  The agency notes that, nationally, home prices climbed about 7% year-over-year as of the end of Q3.  But when Ontario, and specifically the GTA, is dropped out of the calculation home prices across the country remain flat.

The Canadian Real Estate Association acknowledges the record setting sales numbers and intense price growth in the GTA and Ontario’s Golden Horseshoe and points to a dramatic shortage of prized, detached single-family homes.  CREA is pegging the average price increase for Ontario at 15.1% at the close of 2016, driven mainly by Toronto and region.

Along with Vancouver and Toronto, Saskatoon, Regina and Hamilton remained in the CMHC’s “red zone” for a second consecutive quarter.  Calgary eased to a moderate rating and was replaced by Victoria, which is now seen as problematic.  Local market watchers suggest buyers are moving to Victoria to escape Vancouver’s stratospheric prices and the 15% foreign buyer tax.

CREA is saying it sees sales stabilizing and returning to more normal levels in British Columbia.  But, given the nature of the Greater Vancouver market, “normal” may need to be re-defined.   The association sees B.C. prices up by an average of 8.1%.

Calgary and other oil-reliant markets appear to have benefited from improvements in the energy sector, especially the stabilization in the price of oil.  CMHC now says both Calgary and Edmonton show moderate signs of problematic conditions.  Overbuilding is a key concern.

Montreal remains in the moderate category with the key concern being overvaluation.  CMHC says a slowdown in the growth of the young-adult population and a weak increase in personal, disposable income have led to prices that are out of sync with economic fundamentals.  While price growth remains modest it is seeing some acceleration due to tightening market conditions.  Previous concerns about overbuilding have eased.

On the whole, Atlantic Canada shows weak signs of problematic conditions.

At the same time one of Canada’s big banks continues to report deteriorating affordability.  The Affordability Index measures pre-tax, household income against the cost of carrying a home including: mortgage principal and interest, property taxes, and utilities.

The latest figures (for Q3, 2016) indicate affordability declined for the 6th consecutive quarter led by the Greater Toronto Area, which displaced Vancouver.  Detached, single-family homes continued to see the greatest decline in affordability.  As is the case with the CMHC numbers the affordability index flattens out and follows historical norms when Vancouver and Toronto are taken out of the calculation.