Victoria is the only property market in Canada still flashing high vulnerability – Financial Post

Victoria is the only real estate market in the country still showing high vulnerability, but the overall risk of a housing crash in the country remains moderate, according to the Canada Mortgage and Housing Corporation.

“The evidence of overvaluation remains low as housing prices remain close to the levels supported by housing market fundamentals,” Bob Dugan, the CMHC’s chief economist told media as the agency released its latest quarterly report Thursday.

The Canadian Real Estate Association’s home price index rose 0.8 per cent in January compared to December, marking its eighth consecutive monthly gain. The benchmark index is now up 5.5 per cent from last year’s lowest point in May, CREA said in a report last week.

Victoria, capital of British Columbia, “continues to show a high degree of overall vulnerability,” but CMHC added that the imbalances are easing.

“Moderate evidence remains for overvaluation, however, declining inflation-adjusted home prices combined with growing personal disposable income and population have further narrowed the imbalances between observed and fundamental prices in the third quarter of 2019.”

Average Victoria home prices rose 1.4 per cent in January to $858,500, compared to the same period last year, according to the Victoria Real Estate Board.

Vancouver, another major real estate market that has seen sky-high prices in recent years, is also showing signs of easing, amid government tightening.

In Toronto price acceleration and overheating indicators are currently below their critical thresholds, but “market activity continues to rise, displayed by the sales-to-new listings ratio trending towards a sellers’ market and the accompanying stronger price growth,” the CMHC said.

In fact, the risks in the Toronto housing market remained moderate for the second quarter in a row, after being consistently classified as high risk for the previous three years. But Dugan cautioned that overheating and price increases remained a concern to watch for.

Earlier this week, the federal government said it is setting up a new benchmark interest rate for determining if people qualify for an insured mortgage using actual borrowing costs rather than advertised rates. Home buyers will need to qualify at the contract rate or a new benchmark based on 5-year fixed insured mortgage rates, plus 2 percentage points in both cases, the government said Tuesday. Those changes come into effect April 6.

Dugan said the corporation is aware of the possible impact of the federal government’s recent changes to mortgage stress tests and is watching the situation closely.

“It’s something that we’ll obviously monitor,” Dugan said. “The adjusted stress test for mortgages remains an important measure to ensure that Canadians, especially first-time home buyers, take on mortgages that they can afford.”

Markets in Quebec and Atlantic Canada were also considered low-risk, but the report said there was some froth on new construction in Montreal and Moncton.

The risk of a housing crash in the Prairies also remains low, CMHC said. Most markets in the three western provinces saw vacancy rates fall or stay flat, said Dugan, easing the regulator’s concerns about a possible oversupply of new construction.

“The rental market vacancy rates remain below critical thresholds,” Dugan said.

The only market in the west where CMHC kept its moderate risk assessment was Regina, where the vacancy rate for rental apartments is 7.8 per cent, a level which raised the CMHC’s concerns about oversupply.