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Economic factors preventing Edmontonians from home ownership: CMHC

A view over the North Saskatchewan River valley to the skyline of downtown Edmonton, Alberta, Canada.
A view over the North Saskatchewan River valley to the skyline of downtown Edmonton, Alberta, Canada. THE CANADIAN PRESS IMAGES/Don Denton

Edmonton continues to be a buyers’ market as the city and province continue to recover from the 2014 oil price crash and recession.

The Canada Mortgage and Housing Corporation’s (CMHC) Thursday housing market assessment said Edmonton’s overall degree of vulnerability remains moderate due to overbuilding.

Other factors, such as market overheating, price acceleration and price overvaluation, remain low according to the CMHC.

“Unemployment rates, while they have recovered in Edmonton, are still above their pre-recession levels and this is putting pressure on individuals moving into home ownership,” said James Cuddy, CMHC senior analyst.

“At the same time, personal disposable income has also followed a similar downward trend as Calgary. And higher interest rates are Canada-wide. These factors are driving markets across Alberta.”

READ MORE: Selling your home? Prepare to wait, say Edmonton realtors

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The CMHC dropped the vulnerability of overbuilding in Edmonton from high in Oct. 2018 to moderate as a result of continuing high inventory in unsold homes and increased demand in the rental market.

WATCH: Over-supply of real estate means slow sales for Edmonton sellers (2018)

Over-supply of real estate means slow sales for Edmonton sellers
Over-supply of real estate means slow sales for Edmonton sellers

Cuddy said that single detached homes make up the bulk of the unsold housing inventory in Edmonton.

“Singles make up around 46 per cent of total inventory in Edmonton, and inventories are continuing to rise in Edmonton for singles.”

READ MORE: Majority of Edmonton property owners will see decrease in value when 2019 assessments arrive

“The biggest risk in Edmonton is the increasing trend in single detached inventories.”

Cuddy noted that the factors that are preventing Edmontonians from purchasing homes — high unemployment, low disposable income and high interest rates — and increased migration to the city are driving up demand for rentals as the city’s vacancy rate dropped to 5.3 per cent from 7.0 per cent in Oct. 2018.

READ MORE: Edmonton housing surplus, low prices to last into mid-2019: economist

While some political figures have called for mortgage stress tests to be modified from their current form — two per cent above the mortgage interest rate — Cuddy said OSFI’s B20 guidelines aren’t the only thing preventing people from home ownership.

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“I don’t disagree that the stress test has had an impact on some borrowers,” Cuddy said. “But given the way that they were implemented, they are particularly focused on reducing the share of borrowers who are highly-indebted — those borrowers who are seeking high loan of value mortgages.

READ MORE: Jason Kenney wants Alberta exemption on housing stress test

“And there’s evidence to show that the share of mortgages going toward highly-indebted individuals is declining in Calgary and Edmonton.

“It’s very difficult to disentangle the individual effects when looking at an environment in Calgary and Edmonton where we have some real challenges in the economy and higher interest rates as well. Understanding the magnitude of the stress tests in terms of impact is difficult to assess.”

Edmonton joins Calgary, Saskatoon, Regina and Winnipeg as Canadian cities with a moderate degree of vulnerability in those markets.

READ MORE: Canadians’ debt remains ‘really high,’ but improving thanks to tight mortgage rules: BoC

“The HMA (housing market assessment) continues to indicate a high degree of overall vulnerability at the national level,” said Bob Dugan, CMHC chief economist.

“The degree of overall vulnerability remains high for Vancouver, Victoria, Toronto and Hamilton.”