The Canada Mortgage and Housing Corp said that the country is now highly susceptible to a serious correction in home prices.
In a report released yesterday, the CMHC elevated its market risk assessment from moderate to high. The report highlighted both price and activity levels persisting near all-time highs reached earlier in the year due to record low mortgage rates and a collective desire for larger living spaces.
Even with the country's rising vaccination rate and improving economy, it is still difficult to justify the housing market's strength, explained the CMHC. “We’re seeing price acceleration, over-valuation, and it’s increasing the vulnerabilities for Canada,” Bob Dugan, CMHC’s chief economist, said on a conference call with reporters. “Hopefully we don’t see a large fall in house prices.”
The agency raised its risk estimate for Montreal's housing market from moderate to high, raising the number of major Canadian cities most at risk to six. Vancouver, surprisingly, was a notable omission from this list as its risk assessment dropped from moderate to low due to an influx of homes on the market.
Nationally, the agency highlighted slight indications of over-valuation, low housing supply and noted an acceleration in price appreciation. The agency also noted that 85 per cent of newly built homes were sold upon completion, something not seen since the early 2000's.
The CMHC's latest report covered the first half of this year - the Canadian Real Estate Association's August data showed that the benchmark price rose to $736,600, which is a 21 per cent increase from last year.
“Housing market activity is very strong, price growth is still very strong, and price levels are still very high, so it’s appropriate to signal the vulnerability,” explained Dugan. “Hopefully people can take this information into account before it gets too out of balance, and while it’s still possible to get a more orderly adjustment in these imbalances."