Canadian real estate is still highly vulnerable, according to the latest assessment from Canada’s largest Crown Corporation. The Canada Housing and Mortgage Corporation (CMHC), the government backed org in charge of overseeing mortgage liquidity, released a new market assessment today. The release shows that Canadian real estate is still vulnerable into 2018 Q2. This vulnerability is largely due to overvaluation, with a special callout to Toronto and Vancouver.

Market Assessment Cheat Sheet

The CMHC evaluates Canada’s major urban centres under four major indicators: Overheating, price acceleration, overvaluation, and overbuildling.

Overheating: This is largely based on the sales-to-listings ratio. The more sales in contrast to listings, the “hotter” the market gets. When it gets above 70%, the market is “overheating.”

Price Acceleration: This is what it sounds like, a rapid acceleration in home prices. It’s evaluated on a three year rolling basis, so a few hot quarters won’t print acceleration. Just like a few cold quarters, won’t print deceleration. You need markets to demonstrate persistent acceleration to raise this indicator.

Overvaluation: This indicator is based on market fundamentals. You know, things people ignore – like income, population, and interest rates. The further detached housing gets from the fundamentals of the people that live in a city, the further the overvaluation. What a novel concept.

Overbuilding: This indicator is based on the absorption of new units, and rental vacancies. Unfortunately, it doesn’t tell us what level of demand for new units is speculative, because there’s really no way to measure that.

Canadian Real Estate Is Highly Vulnerable

The CMHC believes that Canadian real estate is highly vulnerable in April, with moderate evidence of overvaluation across the country. Analysts noted prices are high compared to “fundamental factors such as income and population.” They specifically called out Vancouver, Victoria, Toronto, and Hamilton as the markets having a broad impact on national numbers.



Better Dwelling. Source: CMHC.

Toronto Real Estate Is Cooling, and Overvalued

Toronto real estate is cooling, but still remains highly vulnerable due to imbalances. The organization detected moderate price acceleration at the end of last year. The sales-to-new listings ratio is at 45%, well below the overheating mark of 70%. Overall, it sounds like things are heading in a healthier direction. Oh yeah, except for that whole overvaluation thing.

The organization notes higher rates and new OSFI rules shifted demand to more affordable options. Basically, a lot of buyers are bidding up the same, smaller segment of housing. Consequently, the gap between prices and fundamentals remained well above the problematic threshold.

Vancouver Is Unaffordable For “Average Local Incomes”

Vancouver real estate remains highly vulnerable, with mortgage rules hitting the market. The organization noted that new mortgage rules concentrated buyers into more “affordable” segments of housing. This may be creating affordability challenges for “households with average local incomes.” Yes, the CMHC did just call out Vancouver’s foreign buyers. It was also the sauciest the CMHC gets. Soak it up.

In case you haven’t guessed, they believe the market is still highly vulnerable to overvaluation. The increased competition for homes in the sub-$1 million dollar range has sent the floor of prices much higher. Further noting prices are well beyond the price fundamentals factors warrant. This has caused their overvaluation models to spike for the city.

Oh yeah, there’s other markets too. Here’s a cheat sheet.



Better Dwelling. Source: CMHC.

A government-backed agency, in charge of helping you get mortgages, thinks Canadian real estate is overvalued? I mean, psh… they probably don’t know as much as your real estate agent.

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