CMHC Downgrades Risks To Canada’s Housing Market

Canada Mortgage and Housing Corporation (CMHC) has downgraded its risk to the country’s housing market, saying that it is now only "moderately vulnerable."

According to the latest assessment from CMHC, the hot conditions previously seen in Canada’s housing market, such as bidding wars and sky-high prices have cooled off. In its quarterly “Housing Market Assessment,” CMHC found that inflation-adjusted average prices fell by 5.4% in the fourth quarter of 2018 compared to the same period in 2017.

CMHC measures "vulnerability" to identify imbalances in the housing market that could result in dramatic corrections where consumers lose money. The object is to provide the public with information they can use to try and avoid buying at the peak of a bubble. Four times per year, the housing corporation rates 15 metropolitan areas in Canada on four measures: overheating, price acceleration, overvaluation and overbuilding. For each area, CMHC assigns a grade of high, moderate or low vulnerability.

High-demand markets in Vancouver, Victoria, Toronto and Hamilton continue to receive grades of "high vulnerability" overall. However, in Vancouver — Canada's most expensive housing market — overvaluation eased from high to moderate in the fourth quarter of last year, according to CMHC.

In Toronto, overheating, price acceleration and overvaluation continue to be of some concern. However, CMHC said that overvaluation is easing and there's little sign of overbuilding in the city.

"After a long period of high vulnerability on all four markers, Canadian real estate is now showing signs of softening, so in fact that's a good thing for the housing market," CMHC said in a news release. "Housing markets are trending toward more balances, so we don't see that as an issue. In fact, that's a desired outcome. What we want is a soft landing rather than a crash landing. This is why this is the outcome we are looking for."