Market vulnerability varies across Canada

  11/19/2017 |   SHARE
Posted in Mortgages and Real Estate by Michael Antczak| Back to Main Blog Page

Calculator / Analysis / Reporting

It will be more difficult to qualify for a mortgage in 2018, with experts saying it will slow the growth of housing in Canada.

New mortgage qualifying restrictions take effect Jan. 1 and there is anecdotal evidence to prove the experts correct.

In October 2016, the Office of the Superintendent of Financial Institutions (OSFI) instituted a stress test qualification for insured mortgages (those with less than a 20 percent down payment). Nine months later, Canada Mortgage and Housing Corporation (CMHC), Canada’s largest mortgage insurer, reported its volumes in the first half of 2017 dropped 34 percent.

That’s “indicative of a reduction in home purchases by young Canadians from middle and low-income families and first-time buyers,” said a report from the Mortgage Professionals Canada Association.

OSFI’s concern is the high level of household debt in Canada, with the regulations aimed at red-hot housing markets. A deflation of housing markets and depreciation of housing values would cost millions of dollars in equity, putting homeowners and CMHC at risk.

CMHC tests housing market vulnerability in its Housing Market Assessment (HMA), which the agency says “provides a comprehensive and integrated view that relies on a combination of signals from several indicators to detect imbalances in housing markets.”

Based on analyzing four main factors — overheating, sustained acceleration in house prices, overvaluation and overbuilding — CMHC identifies markets that have high, medium or low degrees of vulnerability.

The most recent HMA shows “a high degree of overall vulnerability at the national level,” says CMHC, which has to look at the national picture.

An analysis of the HMA shows not all markets are the same. Following is a point-form look at the degrees of vulnerability in markets across the country as of Q2 2017.

High degree of vulnerability


  • Single-detached home sales declined.
  • Elevated sales of apartments and townhomes contributed to overheating.
  • Even with an improvement in population and employment growth, high evidence of overvaluation persisted in the Victoria CMA.


  • Moderate evidence of overheating persisted.
  • Demand has been strong for multi-family units that are more affordable than single-family homes.
  • Low inventories of newly built multi-family homes. 
  • Strong employment and population growth don’t explain the continued growth in prices.
  • Continued detection of overvaluation in the market.


  • Stable house prices and continued economic and demographic growth.
  • Moderate evidence of overvaluation.
  • High evidence of overbuilding with a large inventory of completed and unsold units.


  • High degree assessment due to overvaluation and moderate price acceleration.
  • House prices grew and remained much higher than levels supported by economic and demographic fundamentals. Incomes and population have grown far less than a number of house price measures.
  • Evidence of overheating remained moderate.

Toronto (GTA)

  • Sales have declined from record levels earlier this year.
  • New listings at an all-time high, taking the sales-to-new listings ratio down to 0.45, following six consecutive quarters of the ratio being above the threshold of 0.70.
  • Moderate evidence of overheating, most evident for resale single-detached homes.
  • Sustained evidence of price acceleration reflects higher price growth among all housing types. Prevailing high house prices could not be explained by fundamental economic drivers.
  • High evidence of overvaluation.
  • Low evidence of overbuilding.
  • Strong condominium and rental demand helped absorb excess supply.

Moderate degree of vulnerability


  • High evidence of overbuilding.
  • The inventory of completed and unsold units moved above the level indicating overbuilding in the ownership market.
  • In the rental market, the apartment vacancy rate breached its threshold level in 2016 as increasing rental supply outpaced demand.
  • Low evidence of overheating, price acceleration and overvaluation.


  • High evidence of overbuilding.
  • Elevated rental apartment vacancy rate plus completed and unsold units per 10,000 population have increased well above historical averages.
  • Demand for newly completed units declined due to the economic slowdown.
  • Low evidence of overheating, price acceleration and overvaluation.


  • Low evidence of overvaluation.
  • House prices supported by economic and demographic fundamentals.
  • High evidence of overbuilding in the new home market.


  • Moderate degree of vulnerability due to moderate overbuilding.
  • Low vacancy rate supports an increase of rental construction.
  • Weak evidence of imbalances for all other indicators.

Low degree of vulnerability


  • Moderate evidence of overbuilding.
  • Completed and unsold condominium apartment numbers have steadily declined since mid-2016.
  • Demand for resale condo apartments expanded strongly.
  • Low evidence of overheating, price acceleration and overvaluation.


  • Low vulnerability for a third straight quarter.
  • Little evidence of price growth acceleration.
  • Increases in income and population growth among young adults.
  • Completed and unsold condominium inventory continued to decline.

Quebec City

  • Vulnerability went from moderate to low.
  • Moderate evidence of overbuilding.
  • Weak evidence of overvaluation, due to the strengthening of the job market.

Obviously, some markets are more vulnerable than others. Even so, the new mortgage regulations affect all Canadians.

Source: Calgary Sun

Canada, Canada Real Estate, Canadian Housing Market

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