Canada’s housing market is hot and untouched by the epidemic, and has investment prospects, but not as good as some stocks in terms of returns.
Canada’s housing market faced “moderate” vulnerability for the second consecutive quarter and showed signs of overheating for the first time this year, the Canadian housing agency said.
The Canada Mortgage and Housing Corporation (CMHC) said on March 25 that Toronto, Ottawa, Hamilton, Halifax and Moncton have borne the brunt of the market’s vulnerability rating of “high” in the first quarter of this year due to rising home prices and overvaluation.
CMHC Chief Economist Bob Dugan said some of the market stress and overheating is driven by rural areas such as Niagara, Bancroft and North Bay in Ontario, which do not have a vulnerability rating but are included in the national analysis, according to the Canadian Press.
“When we consider price increases and housing imbalances, these areas are not the center of our usual attention.” He said in a media briefing, “We need to understand that much of the recent stress has come from these smaller communities and therefore is not fully reflected in our assessment today.”
The assessment is based on four factors: an overheated market, soaring home prices, overvaluation and excess inventory; major cities are rated quarterly on a vulnerability scale of low, medium and high.
If these factors become unbalanced, or if the risks in several areas increase at the same time, the agency believes the market could become vulnerable and people’s ability to repay their mortgages could be affected.
Housing regulators and agencies have been closely monitoring the real estate market during the viral pandemic, during which many major cities experienced a shortage of inventory but no shortage of buyers.
High demand has led to higher home prices in areas such as Toronto and Vancouver, while also driving up prices in rural areas where people can work remotely and often pay less for larger homes in more remote areas.
This scenario has already been seen in Toronto and Halifax, and in the first quarter, CMHC rated these two areas, with rising Ontario home prices and overvalued Nova Scotia home prices, as vulnerability shifted from previously moderate to high.
The Hamilton and Moncton markets, which exhibited high vulnerability in previous quarters, maintained that rating this quarter as neither market cooled. Low mortgage rates increased vulnerability in Hamilton by encouraging more first-time homebuyers to enter the market and prompting existing homeowners to sell and upgrade to more expensive properties.
Meanwhile, Vancouver, Victoria and Montreal maintained their moderate ratings. In Vancouver, the quarterly pace of sales returned to pre-2017 levels, leading to a significant increase in home prices. In Montreal, home sales hit a new record and led to significant price increases, and CMHC is wary of possible home price overvaluation.
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