Prices easing but Vancouver's housing market still 'highly vulnerable': CMHC

Despite an easing in prices, the Canadian housing market remains “highly vulnerable,” according to the Canadian Mortgage and Housing Corporation.

Home sales and prices are coming down in Vancouver, but it is still an overheated market, according to a Canada Mortgage and Housing Corporation’s latest look at stability in real estate markets across the country.

“Metro Vancouver’s housing market remains highly vulnerable despite softening prices in the resale market,” said Eric Bond, CMHC’s Vancouver-based analyst.

“There are imbalances even though prices are declining for properties in different segments, in the most recent quarter, because home price growth over the past few years has significantly outpaced local income growth.”

The CMHC’s Housing Market Assessment report released Thursday looked at overheating, price acceleration and overvaluation.

Overheating in the Vancouver market “was first detected” in the last quarter of 2015, according to the report.

Now, the sales-to-new-listings-ratio, which is a way of measuring the balance between demand and supply, is below the 75 per cent threshold designated by the CMHC to trigger an overheating warning.

However, the agency is maintaining Vancouver’s market is overheated because the CMHC model has a “persistence” rule defined by there being a trigger in at least one quarter in the previous three years.

Also, even though the overall sales-to-new-listings ratio for Metro Vancouver has been dropping in 2018, the agency says they have varied widely depending on market location and type.

In the third quarter of 2017, the sales-to-new-listings ratio for single-detached homes ranged from the lowest in West Vancouver of six per cent to a high of 32 per cent in Port Coquitlam. A year later in the third quarter of 2018, it dropped to four per cent in West Vancouver, but saw a much larger drop to 14 per cent in Port Coquitlam.

For condos, there were some steep changes in sales-to-new-listing ratios from 51 per cent in the third quarter of 2017 to 16 per cent in 2018 in Langley, and 40 per cent to 16 per cent in Surrey.

The report first identified price acceleration in the Vancouver market in the second quarter of 2016. Its definition is based again on a significant price increase in at least one quarter in the previous three years and says that “rapid short-term price gains can attract investors and promote speculative activity that pushes prices further upwards.”

“Price growth has slowed considerably so far in 2018 and has turned negative over the past six months in most areas. Declining prices for detached properties in particular are due to high inventories that have accumulated due to sustained declining sales volumes.”

Lastly, when it comes to overvaluation, there is still “high evidence” that in the second quarter of 2018 “current price levels are higher than the estimated values from price models based on demand and supply fundamental factors such as population, income and financing costs.”

There are signs that in the second quarter of 2018 price levels started to move down below the threshold for determining overvaluation and closer to “the actual values of an array of price measures.”

However, “the rating is maintained because the indicator has been above the threshold for at least two quarters over the past year.”

“High price levels coupled with rising mortgage rates since the second half of 2017 continue to stretch home affordability in (Vancouver.)”

Provided by: Joanne Lee-Young for The Vancouver Sun & CMHC