CHMC warns of high housing market vulnerability in Greater Victoria

Overvaluation remains a concern, despite price growth slowing in the first half of 2018

A quarterly housing market assessment from Canada Mortgage and Housing Corporation (CMHC) suggests some areas of Canada remain highly vulnerable, including Greater Victoria.

This is primarily due to overvaluation and price acceleration that has left housing prices higher than what can be supported by economic and demographic fundamentals, according to the report.

CMHC says existing home sales trended downwards during the first quarter of 2018, but have since rebounded allowing inventories to rise from a historic low point. Newly built housing units have also hit a high point as much of what has been under construction for the past year is now coming onto the market. However, there is still strong evidence that suggests the market is overvalued as price growth remains elevated.

“A high degree of vulnerability was detected for the Metro Victoria housing market. A rapid decline in sales has allowed a modest build-up of inventory, dampening price growth,” says Braden Batch, CMHC’s senior analyst for Vancouver Island.

“Inventory growth has been dominated by single-detached housing units at the higher end of the market. At the same time, overvaluation remains a concern largely driven by affordability.”

As of June 2018, CMHC says all types of housing sales across the region are down and trending lower. There are not as many new listings and homes are staying on the market longer, with fewer selling above asking price. At the same time, inventories remain low, while price appreciation remains above inflation.

In fact, price acceleration has been detected in Greater Victoria for each of the past 24 months, according to CMHC.

Overbuilding is not expected to become a concern in the near future despite an inventory that has continued to trend up for the past year. Condo units sold at completion declined 86 per cent in May, mirroring apartment sales in the existing housing market. But as current condo construction remains elevated, inventory could begin to rapidly rise as well.

The current apartment vacancy rate was 0.7 per cent in the most recent rental market survey and the current benchmark value for a condo in the Victoria core in June 2018 was $496,500, according to the Victoria Real Estate Board.

The benchmark value for a single family home in the Victoria core in June 2018 was $889,600.

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