Photo: Rutger van Waveren/Flickr
Lacking enough supply to meet demand, Vancouver and Victoria’s housing markets both showed signs of problematic conditions last quarter, according to the Canada Mortgage and Housing Corporation (CMHC)’s latest quarterly assessment.
During that period, both housing markets saw home prices grow persistently — well above levels justified by fundamentals, such as employment and immigration.
In all, CMHC’s most recent Housing Market Assessment tracks 15 Census Metropolitan Areas and determines whether they display weak (green), moderate (yellow) or strong (red) evidence of problematic conditions.
The assessment, which gauges vulnerabilities to each CMA market’s “stability,” examines four factors: overheating, house price acceleration, overvaluation and overbuilding.
Last quarter, Vancouver and Victoria’s overall market conditions signaled red flags for problematic conditions just as they did in the previous quarter.
Even though home price growth in Vancouver has eased so far this year compared to record appreciation in 2016, the market still showed moderate evidence of price acceleration, CMHC found.
A continual escalation in prices has contributed to signs of overvaluation in the market.
According to CMHC, overvaluation occurs when home prices aren’t justified by underlying drivers of housing markets, such as income, population and actual and expected financing costs.
Despite record housing starts in Q2 2017, competition for affordable housing continued in Vancouver resulting in a supply crunch.
“Townhomes and apartments, which typically sell for less than single-detached homes, were in high demand for first-time buyers and families,” says Eric Bond, CMHC’s principal market analyst for Vancouver, in a statement.
“This led to multiple-offer situations, increasing prices and moderate evidence of overheating for Vancouver,” he adds.
Overbuilding in Vancouver was the only part of CMHC’s most recent assessment that indicated there was minimal evidence of problematic conditions.
With tight housing supply and a bottoming rental market vacancy rate the city is currently struggling to meet demand.
And Vancouver isn’t the only city in BC to face these challenges. Victoria saw similar signs of market troubles last quarter as well.
For the third consecutive quarter, Victoria’s market has drawn red flags from the CMHC as significant supply-demand imbalances continue to play out.
Housing supply in Victoria did not keep pace with demand as the existing market saw a drop in listings.
That pushed home prices higher last quarter, suggesting strong evidence of overvaluation and moderate signs of problematic price acceleration.
In response to low inventories and low rental vacancy rates in Victoria’s new-home market, builders have been breaking ground for more dwellings.
However, overvaluation and price acceleration could continue if new listings in the resale market don’t return to healthier levels.