Are the Overheated Markets of Vancouver and Toronto Open to Corrections?

Canada’s Mortgage and Housing Corporation (CHMC) warns the overheated Toronto and Vancouver real estate markets are susceptible to corrections. It adds, “Housing markets for Vancouver, Toronto, Victoria and Hamilton remain highly vulnerable because of the detection of acceleration and overvaluation,” says Mortgage Broker News.

The CMHC’s chief economist Bob Dugan explains, “Most notably, high evidence of overvaluation is still observed in Vancouver, Victoria and Toronto, where house prices remain higher than levels supported by economic fundamentals.” However, there has been weakening at the luxury top end, while homes below $1 million are riding the wave.

 

Overvaluation in Vancouver Still Evident, Market Analyst Warns

 

Mortgage Broker News goes on to quote CHMC’s Eric Bond. “Overall, the main story in Vancouver is we do continue to detect overvaluation,” he says. “We have price levels that are far higher than the upper predicted values from our price models.

“Nonetheless, we do observe a broad-based cooling in the Vancouver market. It’s become quite imbalanced between different sectors and geographies, where you have high demand and low inventories for properties under $1million that are more affordable in the region.”

 

Are We Seeing the Mortgage Stress Test Working Through?

 

It seems logical the beefed-up stress test would have an impact on the high-price strata, especially as it is the government’s avowed intention to cool things down. The new criteria will make it harder for borrowers to stretch the boundaries. The impact should therefore be greater for higher priced properties.

However, it appears this is not the case with sub $1 million real estate. This can only mean demand is steady or growing in this segment. We wondered whether Vancouver and Toronto’s burgeoning population are behind this, as these numbers must be applying considerable demand push.

 

What Impact Do Immigration Levels Have on This?

 

On December 6th last, Vancouver Sun confirmed a ‘major impact’ from immigration in Vancouver, Toronto, and Montreal. Most immigrants show greater determination than Canadian-born citizens to buy housing in Canada’s three major cities,” it cites University of British Columbia geographer Daniel Hiebert saying.

Hiebert also studied buying and renting patterns along ethnic lines. He confirms, “numerous reports have indicated many new immigrants from East Asia are making their purchases with large amounts of capital earned in their homelands. First and foremost, immigration policy is, essentially, also a form of housing policy,” he adds.

The Vancouver Sun believes “Given the scale of immigration of individuals from China, Hong Kong and Taiwan to Vancouver, it is likely that this group is having an impact on the metropolitan housing market as a whole.” By contrast, property prices in Calgary are steady and lower.

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