The local real estate market is still vulnerable to various harmful shocks, but is becoming less so as housing prices have dropped and incomes have risen. (Black Press File)

Greater Victoria housing market remains vulnerable to shifts

CHMC’s Housing Market Assessment finds Victoria at risk to overheating and price acceleration

First the bad news. A new report from Canada Mortgage and Housing Corporation (CMHC) finds that Victoria’s real estate remains unbalanced. Now the good news. The market is moving towards greater balance.

These findings appear in CHMC’s Housing Market Assessment for the third quarter of 2019. The market assessment is a framework that assesses the vulnerability of any housing market along four factors: overheating, price acceleration, overvaluation and overbuilding.

RELATED: CHMC defends mortgage stress test changes amid calls for loosening rules

The framework also takes into account demographic, economic and financial determinants of the housing market such as population, personal disposable income and interest rates to detect vulnerability.

Turning to Victoria, the report finds a “high degree of overall vulnerability for Victoria” as [price] overheating and price acceleration” remain dominant signals. “Moderate evidence of overvaluation [also] continues to be detected,” it reads. This said, Victoria’s average price dropped by 5.8 per cent in the first quarter of 2019 from a year ago after rising for 15 consecutive quarters, so almost four years.

The real question is whether this drop will remain a downward blip on a line that has been trending upwards, or the start of a larger trend.

RELATED: CMHC reports pace of housing starts in Canada jumped higher in June

The report also offers good news in other ways. The income of would-be buyers has risen, as prices have fallen. Buyers, in other words, have more resources at their disposal. With prices falling and greater peace of mind concerning financial matters, buyers are less likely to rush into the market for fear of being left behind if they do not.

Looking at the broader picture, Victoria remains among a trio of markets (Toronto and Hamilton are the others) with a high degree of vulnerability. “But, conditions of overheating, price acceleration and overvaluation are showing signs of easing in all three centres,” it reads.

Vancouver, once a synonym for an overheated housing market, now shows a moderate degree of vulnerability.

“While home price growth over the past few years significantly outpaced levels supported by fundamentals, these imbalances have narrowed through growth in fundamentals, and lower home prices in different segments of the resale market,” it reads.

Unsaid in the report are two other aspects that have contributed to the decline in the vulnerability: tighter restrictions on mortgages (which have shrunk the number of would-be buyers) and higher housing starts. This said, the region remains among the most unaffordable in Canada.


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