First it was Vancouver… then Toronto. Add Halifax to the list. Then Niagara, Hamilton… Woodstock? Don’t worry, I have no idea where that is either. Canadian real estate is now so frothy even the government can’t ignore it. The Canada Mortgage and Housing Corporation (CMHC) published its Q3 2021 Housing Market Assessment (HMA). In it they declared Canadian real estate to be “highly vulnerable” at the national level. Risk has spilled out of a couple of frothy markets and is now a macro concern. This is the first time the agency has labeled the whole country as highly vulnerable since the pandemic.
Canadian Real Estate Is “Highly” Vulnerable
Canadian real estate is highly vulnerable, said the country’s national housing agency. This is the first time they’ve marked real estate as highly vulnerable at the national level since 2019. They made the call after observing persistent overvaluation and price acceleration imbalances. A market declared highly vulnerable is prone to a downturn, with greater consequences. After all, the more dependent an economy is on housing, the worse it’s hit in the event prices stop growing rapidly.
Yes, people are right about gains driven by fundamentals, such as low interest rates. This is a major contributor, but not the only contributor to surging home prices. The agency found economic and demographic changes fail to explain the whole movement. “Exceptionally strong demand and home price appreciation over the course of the pandemic may have contributed to irrational expectations of continued price growth and, in turn, more buyers entering the market than was warranted,” wrote the agency.
CMHC Housing Market Assessment
Source: CMHC.
Every Highly Vulnerable Market Is Located In Eastern Canada
Canada’s most vulnerable markets are exclusively located in Eastern Canada. Still vulnerable from the last report are Hamilton, Toronto, Ottawa, Moncton, and Halifax. Joining them this quarter is Montreal, which got upgraded from moderate vulnerability. All of these markets have seen overheating in the past two reports. In Ottawa and Toronto, they’re even seeing signs of overbuilding.
Moderate Vulnerabilities Have Appeared In Western Canada
Western Canada isn’t exactly the definition of stable real estate markets though. Moderate vulnerabilities persist in Victoria, Edmonton, and Calgary. All of these markets were moderately vulnerable in the previous assessment as well. This is due largely to excess inventories.
Only A Third of Real Estate Markets Show Low Vulnerability
Few markets showed a low degree of vulnerability, including the most expensive one. Saskatoon, Regina, Winnipeg, and Quebec City remain green, with low levels of vulnerability. Joining these ranks is Vancouver, which was downgraded from moderately risky. It might surprise some, but the ranks don’t factor in affordability in any way. It’s strictly an assessment of how trade is conducted, and how the market is moving.
The organization declaring Canadian real estate highly vulnerable is a bit of a mixed message. The newly appointed CEO recently said they were wrong about tightening lending standards. Now they’re loosening mortgage lending standards as they warn the industry and government about increasing risks.
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I wasn’t bearish until the CMHC threw in the towel and lowered credit ratings. That was the most bearish thing I’ve seen in a while.
Funny Evan Siddall was back stabbed by his own CMHC coworkers few months ago after he warned about the risks in the housing market.
CMHC tried to gain market share again by loosing standard and now they are switching narrative again.
These bureaucrats are not trustworthy at all.
It’s a direct conflict for the CMHC to have the responsibility of making money and informing the public. It’s two contrary goals during a bubble.
Siddall might have been right when he warned, but he had no idea Canada would engage in such a reckless QE experiment to prevent prices from falling.
Evan Siddall championed unlimited and blanket mortgage deferrals for owners and landlords while he remained silent on rent deferrals – a disgusting and immoral unfairness that resulted in multi-unit landlords putting 5 units on deferral and using the extra cash to buy more units, further concentrating Canada’s housing in fewer hands.
That is so appalling!
Death of the middle class happening right in front of our eyes due to big government and criminally corrupt crony capitalism.
What? Selilng all of the pre-sale condos to investors doesn’t mean high demand for housing is here, it means investors are scooping the demand?
I used to wonder why I knew so many people that would buy condos and not use them, but it’s starting to make more sense. Without a shortage, people would have a hard time justifying paying such higher premiums.
Doesn’t say overvaluation for Toronto which I tend to disagree with…
It’s not a measure of affordability, but from the perspective of wage affordability I’m guessing a market where only 10% can purchase isn’t sustainable.
In a world where 45% of the wealth is in the hands of 1% of the population, it seems likely that the end-game is a housing market predominantly owned by corporations/institutional landlords.
Canada just needs to perpetuate the clever ruse that this country offers stability and opportunity to hardworking immigrants seeking a better future and we’ll have an endless supply of double-crossed renters stuck in the vicious debt cycle that sees them paying mortgage-level prices for rent. At least until they can afford the down payment of an inflated asset that could potentially lose 40% of it’s value overnight if the right set of dominos fall.
One of the best comments ever! Kudos
It’s not a measure of affordability, but from the perspective of wage affordability I’m guessing a market where only 10% can purchase isn’t sustainable.
Ironic to be warned about a bubble from the agency responsible for leveraging up young people the most.
Well, alI I know is that if I were a RE agent, and hadn’t made enough $ in the last 5 years to retire, I’d be prepping for a career change. I can’t believe it took this long to get to this point though. The insanity had to end. Our own house may shed a few percent (or 30), but something really had to give. It doesn’t take a brain surgeon to figure that one out. Been here before!
How is Vancouver not overvalued? The prices are beyond preposterous.