The Metro Vancouver housing market is still exhibiting signs of overvaluation as home prices continue to outpace local income growth, according to a new Canada Mortgage and Housing Corporation’s report released today, Oct. 25.
The federal housing agency’s quarterly Housing Market Assessment, which for this edition assessed market activity in 2018’s second quarter, has pegged the region as highly vulnerable for 10 consecutive quarters.
Although home price growth is moderating in Vancouver, evidence of overvaluation and overheating remains high as price growth over the past few years has accelerated past what is affordable to most household incomes.
“House prices are higher than the price levels supported by the fundamentals,” the report states. “However, with price growth moderating and the young adult population growing, the conditions of overvaluation are easing in all four centres (Vancouver, Victoria, Toronto and Hamilton).”
The quarterly Housing Market Analysis analyzes real estate markets across Canada, assessing a combination of four key risk factors: overheating, when demand for homes in the region outpaces supply; sustained acceleration in house prices; overvaluation of house prices in comparison with levels that can be supported by economic fundamentals; and overbuilding, when the inventory of available homes exceeds demand.
CMHC reported Vancouver as exhibiting three of the four risk factors for the year’s second quarter: Overheating, overvaluation and price growth acceleration. However, low inventory of new home construction and sales has led to little evidence of the fourth risk factor — overbuilding.
Despite maintaining a high degree of overall vulnerability, the national housing market is showing signs of easing overvaluation.
In the second quarter of 2018, the inflation-adjusted MLS average price dropped by 8.7 per cent from the same period in 2017. A decline in sales of pricey single-family homes has also contributed to a decrease in average sale prices. Despite this, CMHC has maintained a moderate overvaluation rating, as a longer period of improved home prices is required to deem national overvaluation low.