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Canada’s housing market is showing signs of overheating, CMHC says

Click to play video: 'Bank of Canada issues warning about overheated housing market' Bank of Canada issues warning about overheated housing market
After months of rising housing prices and record-low mortgage rates, the Bank of Canada issued a warning that the real estate market may be starting to overheat. Financial analyst Michael Campbell has more on the consistent strength in the housing market during the pandemic. – Feb 24, 2021

Canada’s housing sector is facing a “moderate” degree of vulnerability to market instability for the second straight quarter and showing signs of overheating for the first time this year, says the country’s housing agency.

Canada Mortgage and Housing Corp. said Thursday that the brunt of the risks have been shouldered by Toronto, Ottawa, Hamilton, Halifax and Moncton, which all had high levels of vulnerability in the first quarter of 2021 as they experienced price increases and overvaluation.

However, some of the overheating and market pressure is being driven by rural areas like Ontario’s cottage country and the Niagara, Bancroft and North Bay regions, which don’t receive vulnerability ratings but contribute to the national analysis, said CMHC chief economist Bob Dugan.

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“These are centres that are not the ones that are usually on our radar when we are thinking of price escalation and housing imbalances,” he said during a media briefing.

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“We have to keep in mind that much of the recent pressure has occurred in some of these smaller communities and therefore not fully reflected in our assessment today.”

Read more: What you can buy in housing markets across Canada for $500K, $1M and $1.5M

That assessment assigns low, moderate or high vulnerability ratings every quarter to major cities based on four factors _ overheating, price acceleration, overvaluation and excess inventories.

If those factors become imbalanced or risks increase in several areas at once, the agency posits that markets could be more vulnerable to troubles and people could begin struggling with their mortgages.

Housing regulators and bodies have been watching the real estate market closely throughout the COVID-19 pandemic because many major cities have seen a lack of inventory but no shortage of buyers during the health crisis.

Read more: Behold, the Canadian condo market joins the COVID-19 real estate frenzy

These conditions have driven up prices in areas like Toronto and Vancouver, but also in rural neighbourhoods, where people are now flocking because they can work remotely and often pay less for a bigger home.

Some of these patterns have emerged in Toronto and Halifax, which CMHC moved from moderate to high degrees of vulnerability in the latest quarter as Ontario housing prices increased and Nova Scotia experienced overvaluation.

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The Hamilton and Moncton markets were showing a high degree of vulnerability in the prior quarter and held onto that rating as neither market cooled off.

Hamilton’s vulnerability was being fuelled by low mortgage rates, which encouraged more first-time buyers to step into the market and pushed existing homeowners to sell and upgrade to more expensive properties.

The market also saw people from neighbouring regions flock to the area for more spacious homes.

Meanwhile, Vancouver, Victoria and Montreal maintained their moderate ratings, even as the markets saw a flurry of homes change hands.

Read more: Canada’s housing market showing ‘early signs’ of overheating, Bank of Canada warns

 

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In Vancouver, the quarterly pace of sales returned to levels not seen since 2017, leading to significant price increases.

In Montreal, sales set new records and led to significant price appreciation, putting CMHC on watch for overvaluation imbalances.

Saskatoon, Winnipeg, Regina and St. John’s hold onto the low degrees of vulnerability they previously experienced, but Calgary and Edmonton moved from low to moderate rankings.

Calgary’s ratings were fuelled by high levels of excess housing inventory, while Edmonton’s were attributed to overvaluation.

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