Overvaluation and price acceleration keep Canada's overall housing market highly vulnerable

  4/26/2018 |   SHARE
Posted in Canadian Housing Market by Forest Hill Real Estate Signature| Back to Main Blog Page

Housing Market Concept Image

Canada's housing market overall remains highly vulnerable for the seventh consecutive quarter mainly due to evidence of overvaluation and price acceleration observed in Census Metropolitan Areas such as Toronto, Vancouver, Victoria, and Hamilton, according to Canada Mortgage and Housing Corporation (CMHC).

On a quarterly basis, CMHC issues its Housing Market Assessment (HMA) to provide Canadians with both expert and impartial insight and analysis, based on the best data available in Canada. This report acts as an "early warning system" for the country's housing markets – an important tool supporting financial and housing market stability.

Results are based on data as of the end of December 2017 and market intelligence as of the end of March 2018.

Report highlights:

  • A high degree of vulnerability is maintained in Toronto. Price declines in single-detached homes have been more pronounced during the fourth quarter of 2017, but market conditions for condominium apartments have tightened, resulting in stronger price gains. Low evidence of overbuilding remained, as inventories declined across all housing types.
  • Vancouver's housing market remained highly vulnerable. Rising prices for homes in the sub-$1 million market segment, coupled with rising mortgage rates, have eroded overall affordability further in the fourth quarter of 2017.
  • In Victoria, there is strong evidence of overvaluation as house prices remained elevated over local incomes. Evidence of overbuilding remains weak, however, the inventory of completed and unsold units relative to population is trending up from a recent low point.
  • The Hamilton housing market remains highly vulnerable, although the degree of overvaluation lessened as house prices became more aligned with personal disposable income, population growth, and employment.
  • Montreal still shows a low degree of vulnerability, but the growth rate in house prices has increased. If this increase continues, the level of price acceleration could be raised to moderate in a future HMA. 
  • Strong evidence of overbuilding is still observed in Calgary, Edmonton, Saskatoon and Regina due to high inventories of new and unsold homes as well as high rental vacancy rates. Only in Saskatoon and Regina does this trend seem to be unwinding, as the inventory of completed and unsold units shifted lower in the fourth quarter.
  • Low vulnerability is detected for housing markets in Winnipeg and in Atlantic Canada.

CMHC defines vulnerability as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration - or combinations thereof - depart significantly from historical averages.

As Canada's authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers, and the housing industry.


"Our market assessment continues to show a high degree of vulnerability at the overall national level due to moderate levels of price acceleration and overvaluation existing together. Regionally, there's a fair amount of variation, as we continue to see a high degree of vulnerability in major centres in Ontario and British Columbia while Prairie and Atlantic markets range from moderate to low."

Bob Dugan, Chief Economist

"We continue to see a high degree of vulnerability in the Hamilton housing market due to price acceleration and overvaluation. It's important to note, however, that overvaluation is easing as house prices are moving further into line disposable incomes, population growth, and employment."

Anthony Passarelli, Senior Analyst, Hamilton


CMHC's HMA analytical framework is designed to evaluate the extent to which there are vulnerabilities in Canadian housing markets. The framework assesses housing market conditions and considers the incidence, intensity and persistence of four main factors:

  1. Overheating of demand in the housing market, wherein sales significantly outpace new listings.
  2. Acceleration in house prices, which could be partially reflective of speculative activity.
  3. Overvaluation in the level of house prices, which indicates that house price levels are not fully supported by fundamental drivers such as income, mortgage rates and population.
  4. Overbuilding of the housing market, when the rental market vacancy rate and/or the inventory of newly built housing units that are unsold is elevated.

Each of these factors is measured using one or more indicators of housing demand, supply and/or price conditions. The table below outlines the results from the previous release in January 2018 and the current April 2018 release.


Source: Canada Mortgage and Housing Corporation

Canada Real Estate, Canadian Housing Market, CMHC