No housing bubble in Canada: CMHC
Tuesday, November 25, 2014
Byline: Garry Marr
Canada Mortgage and Housing Corp. said Monday its latest analytical research tool shows there is no housing bubble forming in the residential market.
But the Crown corporation warned builders in some markets – notably Toronto and Montreal – to keep a close eye on construction to make sure they are not building for demand that doesn’t materialize.
“That is basically the conclusion I would come to,” said Bob Dugan, chief economist with CMHC, in rejecting the idea of a housing bubble forming.
His assessment was based on what CMHC calls its House Price Analysis and Assessment, a report that examined eight Canadian markets and looked at the economic, financial and demographic drivers of those housing markets.
Meanwhile, a survey of some of the Canada’s leading land surveyors said there was strong growth in the construction sector during the third quarter.
The London-based Royal Institution of Chartered Surveyors, which interviews dozens of senior managers in the largest construction firms in the country for its quarterly survey, said it expects 4% growth for the coming year for Canada’s construction sector. The report was made available to the Financial Post.
Peter Norman, chief economist with Altus Group, a member of RICS, said one of the myths in the housing market is that residential investment doesn’t have much room to grow.
“Housing investment numbers are almost at historical lows,” said Mr. Norman, noting the construction dollar value in housing has actually been shrinking since the 2008 recession. New home construction is high, he said, “but it’s all apartment starts. The construction investment value of an apartment might be half of a single family home.”
Mr. Norman said the trend towards apartments or high-rise units has been happening across the country, something driven by government planners.
In its report, the CMHC cautioned builders in the Toronto, Montreal and Quebec City markets against overbuilding.
“The number of units under construction is elevated in these centres,” Mr. Dugan said. “This could develop into overbuilding if these units are completed but not sold. To mitigate this risk, builders will need to hit the appropriate balance in channeling new demand between units that are currently under construction but not sold and units that are in the planning stage.”
Mr. Dugan noted that the steady gains of Canadian prices since the 2008 global recession have far outstripped increases in home prices in other markets such as Australia, the United Kingdom and the United States.
“The question is will a correction take place and you hear different answers to this question and part of that is due to mixed signals in the data,” he said.
While the real estate market has been relatively balanced since 2010, which should result in prices keeping in-line with inflation, the average resale home price is up 6.9% so far this year compared to 1.9% for the consumer price index.
“But you dig a little deeper and you find price levels and price growth varies across the country,” Mr. Dugan said, noting values are down 1% in the Quebec City area year-to-date yet up 8.1% in the Toronto census area.
“Canada is really not one large market, it is a collection of many smaller markets that differ in factors,” he said.
CMHC‘s new risk assessment model considers overheating of demand, acceleration in house prices, overvaluation in house prices and overbuilding in the housing market to determine whether a market is at risk of a correction.
Of the eight markets studied, Vancouver, Halifax, Calgary, Edmonton and Ottawa were all considered low risk for a correction. Toronto, Montreal and Quebec City had a moderate risk for a sharp decline in prices.