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Risks are receding in Canada's housing market

Canada's federal housing agency has lowered its assessment of the overall vulnerabilities in the national market to "moderate" from "high".


RECENT rule changes by Canadian policymakers, including tightened mortgage lending, appear to be bringing the country's real estate market more into balance.

The federal housing agency lowered its assessment of the overall vulnerabilities in the national market to "moderate", from "high", according to a report last Thursday from Ottawa. Canada Mortgage and Housing Corp (CMHC) cited evidence of easing price acceleration for the country as a whole, with prices in Toronto and Vancouver moving closer to levels supported by fundamentals.

After being rated "high" for 10 straight quarters, the overall degree of vulnerability for Canada has changed to "moderate", the agency said in the report.

Home sales and prices have slowed in Canada after governments at various levels took steps to mitigate the risks of a crash. The federal banking regulator imposed stress tests on new mortgage lending last year, a measure that has been particularly controversial.

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Canadian Imperial Bank of Commerce economists, along with realtor groups and home builders, have argued that the rules should be eased, saying that they are punishing first-time buyers. Economists at Toronto-Dominion Bank said that the rules have contributed to bringing down housing activity to a more sustainable level, but there is "scope to tweak the guidelines" if housing undershoots expectations.

Bank of Canada governor Stephen Poloz said last week that after a "huge run-up in housing", speculation is coming out of the Toronto and Vancouver housing markets, but more time may be needed for it to settle out completely.

The Real Estate Board of Greater Vancouver reported last Thursday that benchmark home prices fell 8.5 per cent in April from a year ago while sales were down 29 per cent. Toronto reports data on Wednesday.

CMHC said that its assessment of overvaluation in Vancouver has changed to moderate from high, and the "conditions of overheating are easing as well".

Vancouver, Toronto, Victoria, British Columbia, and Hamilton, Ontario continue to see a "high degree of vulnerability" in the overall assessment, "but house prices are moving closer to levels supported by housing market fundamentals" in those cities.

That said, CMHC flagged "evidence of overheating" in the Montreal and Moncton, New Brunswick resale markets. Also, vulnerability remains "moderate" for the western cities of Edmonton, Calgary, Saskatoon, Regina and Winnipeg due to "evidence of overbuilding" in these cities.

The report is based on data till the end of 2018. BLOOMBERG

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