GTA home prices exit the red zone

The Peterborough Examiner - - BUSINESS - TESS KALINOWSKI

Canada’s na­tional hous­ing agency has moved the Toronto re­gion hous­ing mar­ket out of the high-risk red zone and into the mod­er­ate yel­low area for the first time since 2015.

There are still signs that the area’s mar­ket is vul­ner­a­ble to price ac­cel­er­a­tion and over­heat­ing, but over­val­u­a­tion — where home prices ex­ceed in­come lev­els by an ex­ces­sive amount — eased from mod­er­ate to low in the first three quar­ters of the year, said Canada Mort­gage and Hous­ing Corp. (CMHC), which re­leased its fourth-quar­ter Hous­ing Mar­ket As­sess­ment on Thurs­day.

“From an over­all per­spec­tive there’s still a mod­er­ate de­gree of vul­ner­a­bil­ity but, of course, with the over­val­u­a­tion eas­ing, that has led to our as­sess­ment com­ing in at mod­er­ate,” said Dana Se­nagama, man­ager of mar­ket anal­y­sis for On­tario.

But while the mar­ket as a whole is at less risk, some hous­ing types, such as con­do­mini­ums, are still vul­ner­a­ble to over­heat­ing and price ac­cel­er­a­tion, she added.

“While the ac­tiv­ity has soft­ened in the lowrise cat­e­gory, we are see­ing height­ened ac­tiv­ity in the more price-friendly point for first-time buy­ers in con­dos and towns,” said Se­nagama.

As over­val­u­a­tion eased, home-buy­ing ac­tiv­ity has picked up since the first quar­ter of this year. The av­er­age home price in­creased by 0.8 per cent year over year in the sec­ond quar­ter of 2019 on an in­fla­tion-ad­justed ba­sis.

Dis­pos­able in­come lev­els also grew by 0.5 per cent.

The re­gion’s first-time home-buy­ing pop­u­la­tion, peo­ple aged 25 to 34, grew by 3.7 per cent com­pared to 1.9 per cent na­tion­ally.

“Sup­ply con­tin­ues to be the defin­ing fac­tor in the Toronto hous­ing mar­ket — or rather the lack of sup­ply — both in home own­er­ship but also in rental,” said Se­nagama.

There has been a tight sup­ply in lowrise hous­ing since CMHC started do­ing the Hous­ing Mar­ket As­sess­ment in the third quar­ter of 2015.

But as de­mand for con­dos con­tin­ues to grow, it’s in­creas­ingly an is­sue in that seg­ment too, she said.

CMHC’s Hous­ing Mar­ket As­sess­ment uses four fac­tors: over­heat­ing, price ac­cel­er­a­tion, over­val­u­a­tion and over­build­ing to as­sess the hous­ing pic­ture na­tion­ally and in 15 ma­jor metropoli­tan ar­eas.

The lat­est re­port gives the na­tional hous­ing mar­ket a mod­er­ate rat­ing for the third con­sec­u­tive quar­ter, fol­low­ing 10 quar­ters where it was pre­vi­ously rated at a high de­gree of vul­ner­a­bil­ity.

Hamil­ton also saw its vul­ner­a­bil­ity rat­ing drop from high to mod­er­ate, thanks to lower over­val­u­a­tion.

“Over­heat­ing and price ac­cel­er­a­tion are still sig­nalled due to large mar­ket im­bal­ances that de­vel­oped at the be­gin­ning of the lat­est three-year pe­riod. How­ever, an un­wind­ing of those im­bal­ances has oc­curred since then,” said the CMHC re­port.

Over­val­u­a­tion has been de­creas­ing over­all in Canada and in key mar­kets such as Vancouver and Vic­to­ria, as well as Toronto, said CMHC chief econ­o­mist Bob Du­gan.

Al­though the Vic­to­ria mar­ket is no longer con­sid­ered to be over­heated, it re­mains the only Canadian mar­ket in the red zone, due to price ac­cel­er­a­tion and over­val­u­a­tion.

How­ever, those con­di­tions are eas­ing, Du­gan said.

Vancouver re­mains mod­er­ately vul­ner­a­ble with con­tin­u­ing over­val­u­a­tion.


Some hous­ing types, such as con­do­mini­ums, are still vul­ner­a­ble to over­heat­ing and price ac­cel­er­a­tion, ac­cord­ing to a CMHC re­port.

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