The vulnerability of Metro Victoria’s housing market remains high, although the level of overvaluation has been downgraded to moderate.
That’s according to the latest quarterly Housing Market Assessment report from the Canada Mortgage and Housing Corporation (CMHC), which serves as an “early warning system” for the country’s housing market.
The report says overvaluation in Victoria is still detected but is easing as house prices move closer to levels supported by housing market factors such as population, income and interest rates.
As a result, CMHC dropped evidence of overvaluation for Victoria from high to moderate in the third quarter of 2018, as average statistical tests have been below threshold levels for a year.
“The population of young adults, which is a key driver of household formation, increased in the third quarter adding support for house price growth,” CMHC west region senior analyst Braden Batch said in a statement.
“However, the support from population growth was mitigated by a slight decline in disposable income and an increase in mortgage rates.”
Batch says the overall high vulnerability rating means there are risks in the market and people need to be prudent when they are deciding whether to buy, sell or rent a property.
CMHC says vulnerability levels remain moderate in Metro Victoria in the category of overheating, which is based on the ratio of sales to new listings in the market for existing homes.
The Victoria ratio in the third quarter of 2018 measured 59 per cent, well below the threshold of 80 per cent.
The level is also moderate in price acceleration, which moved below the threshold in the second quarter and stayed there last quarter.
Although price growth on average exceeded inflation in the third quarter report, it has flattened compared to peak growth between late 2016 and early 2017.
“If you took a step back and sort of looked at a line chart of where prices are, that’s eight per cent over a year ago, but month-to-month changes and quarter-to-quarter changes, those have more or less been a flat line now for a number of months,” Batch said.
The vulnerability is low for overbuilding, with per capita completed and unsold units well below threshold levels.
The report says single-detached and semi-detached homes dominated inventory of completed and unsold units, although it is low for row and apartment units.
The national real estate market remains vulnerable for the tenth quarter in a row.
The degree of overall vulnerability remains high in cities such as Vancouver and Hamilton, where the housing market has cooled in recent quarters but property prices remain high compared to these economic fundamentals.
Toronto’s market vulnerability is also high, but like Victoria, overvaluation was downgraded in the country’s largest city to moderate.