Tuesday, 26 May, 2020

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Canada’s National Housing Agency Thinks Toronto Is No Longer Overvalued | Better Dwelling

What housing affordability crisis? The latest Canada Mortgage and Housing Corporation (CMHC) Housing Market Assessment shows real estate is at a “moderate” level of risk. The ratings, were largely unchanged, but did include one surprise. Toronto and Hamilton, previously at high vulnerability, received downgrades to their risk. Generally, more risk is seen in real estate markets west of Ottawa. From Ottawa, heading east, all major markets are still in the clear, according to the agency.

The Housing Market Assessment

The Housing Market Assessment is a color coded (read: simplified) look at real estate.  The CMHC rates fundamentals using just three levels – low (green), medium (yellow), and high (red). Overheating and price acceleration only rank low or moderate. That is, overheating and price acceleration only exists, or it doesn’t. It’s totally binary, and there’s no degree. Besides those two, the rest of the market ranks in degrees of vulnerability.

Canadian Real Estate Is Moderately Vulnerable

Canadian real estate is displaying moderate signs of vulnerability in the latest report. The report for 2019 Q4 shows it holding the same moderate rank as last year. This follows ten quarters of a red, or “high,” degree of vulnerability. Overvaluation is the only key issue the housing agency readily sees in its models.

Canada’s National Housing Agency Thinks Toronto Is No Longer Overvalued - chart
Source: CMHC.

Toronto Real Estate Is Moderately Vulnerable

Toronto real estate has a “moderate” vulnerability rating – an improvement from high. Market activity is improving, there’s still overheating, and prices are accelerating. Overvaluation is easing though. Kind of silly, since they’re looking at the market from an aggregate perspective. Detached home prices increased just a few notches above inflation. However, condo prices increased nearly a whole year of wages for the median person in Toronto.

Vancouver Real Estate Is Moderately Vulnerable

Vancouver real estate maintained it’s “moderate” vulnerability rating. The market is overvalued, but the agency isn’t seeing overheating. Price acceleration has been low over the past year, because it’s been negative. Worth a mention that sales volumes have returned, and those negatives are shrinking.

Montreal Real Estate Has Low Levels of Vulnerability

Montreal, a hot market for investors recently, is demonstrating low levels of vulnerability. The agency notes that home prices are consistent with economic and demographic fundamentals. They also note the resale market is beginning to show signs of overheating. So far, it hasn’t registered on the color coded model yet.

Not a lot’s changed, except for the downgrades to Toronto and Hamilton real estate. Both markets continue to “overheating,” but somehow don’t show overvaluation. Major cities west of Ottawa continues to show moderate signs of vulnerability. Ottawa and East, continue to display few signs of vulnerability.

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