The Metro Vancouver housing market is still exhibiting signs of overvaluation as home prices continue to outpace local income growth, according to a new Canada Mortgage and Housing Corporation (CMHC) report released October 25.
The federal housing agency’s Housing Market Assessment for 2018’s second quarter said the region has been highly vulnerable for ten consecutive quarters.
Although home price growth is moderating in Vancouver, evidence of overvaluation and overheating remains high as prices have accelerated past what is affordable to most household incomes over the past few years.
“House prices are higher than the price levels supported by the fundamentals,” the report said. “However, with price growth moderating and the young adult population growing, the conditions of overvaluation are easing in all four centres (Vancouver, Victoria, Toronto and Hamilton).”
The analysis assesses real estate markets across Canada and looks at four key risk factors: overheating, when demand for homes in the region outpaces supply; sustained acceleration in house prices; overvaluation of house prices in comparison with levels that can be supported by economic fundamentals; and overbuilding, when the inventory of available homes exceeds demand.
The CMHC said Vancouver exhibits three of the four risk factors for the year’s second quarter: overheating, overvaluation and price growth acceleration.
Despite maintaining a high degree of overall vulnerability, the national housing market is showing signs of easing overvaluation.
In the second quarter of 2018, the inflation-adjusted MLS average price dropped by 8.7 per cent from the same period in 2017. A decline in sales of single-family homes has also contributed to a decrease in average sale prices. Despite this, the CMHC has maintained a moderate overvaluation rating, as a longer period of improved home prices is required to deem national overvaluation low.