One of Canada's most trusted authorities on real estate is sounding a strong warning on the state of Vancouver housing.
The city's real estate market is showing "strong evidence of problematic conditions," meaning it's vulnerable to market instability, the Canada Mortgage and Housing Corporation (CMHC) said in its third quarterly Housing Market Assessment (HMA).
The CMHC, a Crown corporation that provides mortgage insurance, had previously assessed the market as showing only "moderate" signs of being problematic in its second quarterly report.
But conditions are looking worse now as detached single-family home prices continue to accelerate beyond local incomes.
The quarterly assessment comes as the B.C. government plans to implement several measures, including a 15 per cent tax for foreigners purchasing property, in an effort to cool down house prices that are among the highest in North America.
The CMHC considers four factors when deciding if a housing market is problematic:
- Overheating, which happens when existing home sales outpace new listings
- Accelerating home price growth
- Overvaluation, which occurs when home prices are out of sync with market fundamentals such as population and income
- Overbuilding, which happens when there's increased rental market vacancy or unsold housing units.
Vancouver real estate certainly shows more evidence of overheating and price acceleration, with CMHC upgrading those categories from "weak" to "moderate." It also continues to display strong signs of overvaluation.
And that's saying nothing of affordability. Royal Bank of Canada's (RBC) latest housing affordability index showed Vancouver registering the worst housing affordability of any time in Canada's history.
RBC noted that buying a single-family home would now take up 119.5 per cent of local incomes.
And Vancouver isn't the only market showing strong evidence of problematic conditions.
The CMHC has also flagged Toronto, Calgary, Saskatoon and Regina in its red zone, though Vancouver was the only market to be upgraded to "strong" between its last two assessments.
Canada overall is showing "moderate" evidence of problematic conditions, though it's also showing "strong" signs of overvaluation.
Much of it has to do with continuing price hikes in Vancouver and Toronto.
"If price acceleration continues and broadens, the level of evidence for the overall assessment of the housing market in Canada will likely be raised to high in the next HMA," the CMHC said.
With files from The Canadian Press
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