The Canada Mortgage and Housing Corporation (CMHC) just released its first quarter assessment, which evaluates real estate vulnerability, prices and construction at a national and provincial level.
Here is a summary of their findings:
In Montreal, vulnerability remains low
The degree of vulnerability remains low in Montréal’s central metropolitan area. A market becomes vulnerable when prices are overvalued, putting homeowners and mortgage lenders at risk of a housing bubble.
Evidence of overheating is low but increasing on the Montreal resale market, according to the CMHC’s first quarter report. A tightening relationship between supply and demand has propelled the market in favour of sellers. However, there is weak evidence of price acceleration and seasonally adjusted sales-to-new listings ration was 65%, which is below the problematic threshold.
Market conditions differed from one segment to another:
- The single family and ‘plex segments currently favours sellers
- The condominium segment is a balanced market, but leaning in the direction of a buyers’ market
- Over the next few quarters market conditions are expected to further tighten
- Sales are expected to continue increasing, while active listings decrease
- The decrease in active listings-to-sales ratio for single-family homes was evident across the larger geographical sectors.
- On Montréal Island, the South Shore and in Laval, market conditions became favoured sellers.
- On the North Shore and in Vaudreuil-Soulanges, conditions tightened in the first quarter, resulting in the market swinging from a balanced market to a seller’s market
- In the condominium segment, market conditions favoured buyers, except on Montréal Island, where the market is balanced.
- Laval and the North Shore are the best markets for buyer, where there are around 14 sellers to each buyer.
Evidence of price growth acceleration in Montreal remained weak towards the end of 2017, but approached the problematic threshold. The tightening of the relationship between supply and demand on the resale market has put extreme upward pressure on prices.
“For a fourth straight quarter, the degree of vulnerability of the Montréal CMA housing market remained low. However, the Montréal resale market continued to tighten, and this increased pressure on prices.”
In the third quarter of 2017, appreciation in the average price of single-family homes in the major sectors of the Montréal area was between 4% and 9%, a sharp increase compared to the year before.
The condominium saw less price growth, with a -1% to -3% average appreciation in the GMA.
The economic outlook should remain favourable over the course of 2018 when it comes to housing demand.
Levels of personal disposable income in combination with accelerated population growth among young adults have allowed house prices to remain at levels supported by fundamentals.
Fundamentals of the GMA area are generally favourable to housing demand, with an increase in the population of young people aged 25 to 34 (+0.3%), and a decreasing five-year fixed rate (from 1.8% to 1.2%).
Evidence of overbuilding on the Montréal housing market remained weak. Meanwhile, the inventory of unsold condominiums continues to decrease.
The last four months of the year recorded a 40% increase in condominium “starts” (real estate construction projects started during a particular timeframe). This is expected to put upward pressure on inventory of unsold condominiums, without pushing it past the problematic threshold.
The rental market is doing particularly well in the CMA. Montreal’s rental vacancy rate recorded its strongest decline in over 15 years.
According to the Rental Market Survey, vacancy rates in Montreal fell from 3.9% in October 2016 to 2.8% in October 2017. Increase in conventional rental demand driven by an upswing in net migration is the biggest driving force of the decline.
In Quebec City, market vulnerability remains low
CMHC concluded that the degree of market vulnerability is also low in Quebec City. Prices were relatively stable in the major real estate markets of Quebec – price growth acceleration remained in line with the expected average, and there was little evidence of overheating.
“The overall degree of vulnerability for the Québec-area housing market remained low. However, evidence of overbuilding warrants close attention due to the large number of recent conventional rental housing starts.”
This is in part due to the relatively high supply of properties for sale in the area.
“Overbuilding” levels remained generally low at the end of 2017, although Quebec’s pace of conventional rental apartment construction is high from a historical standpoint. The conventional rental market warrants close attention, since rental vacancy rates are relatively high compared to other metropolitan areas (4.5%).
Then number of new starts remained historically high in 2017, with growth in the supply of rental apartments at risk of overtaking demand. Accelerated construction would put upward pressure on the vacancy rate.
Results are based on data as of the end of September 2017 and local market intelligence up to the end of December 2017.
High market vulnerability on the national level
This is the sixth consecutive quarter in which Canada’s HMA has shown a high degree of vulnerability.
The high vulnerability rating is due to a combination of price acceleration and overvaluation, and is driven by the overheated markets of Victoria, Vancouver, Hamilton and Toronto.
Only weak signs of overbuilding were detected for Canada as a whole. The inventory of completed and unsold units per 10,000 population slightly dropped 0.1 points to 3.9 units in the fourth quarter of 2017.
Apartment rental vacancy rates decreased from 3.78% to 3% year over year, according to CMHC’s Rental Market Survey.
About the CMHC
CMHC helps Canadians meet their housing needs. As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, providing support for Canadians in housing need, and offering objective housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of their operations.
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