MNI:Canada's Housing Market Remains 'Highly Vulnerable' - CMHC

-- 5-Year Mortgage Rate Could Reach 6.20% in 2019

By Yali N'Diaye

     OTTAWA (MNI) - Evidence of overvaluation and price acceleration leaves the

Canadian housing market "highly vulnerable," Canada Mortgage and Housing

Corporation said Thursday in its quarterly Housing Market Assessment.

     Canada's housing agency added in its Housing Market Outlook that despite an

expected decline in housing starts by 2019, they should remain close to the

average of the past five years.

     The country's housing market remains an "important vulnerability",

especially in the greater Toronto and Vancouver areas, the Bank of Canada

reminded Wednesday.

     CMHC said that it continued to see "moderate evidence" of price growth

acceleration in Toronto, with the agency unable to explain high prices by

fundamentals such as income and demographics.

     The picture also remained concerning in Vancouver, where the market was

still "highly vulnerable" in light of moderate evidence of overheating and price

appreciation, as well as "strong overvaluation."

     When announcing its decision to leave its key policy rate unchanged at

1.0%, the BOC singled out a pronounced drop in house prices among the three main

downside risks to the inflation outlook.

     In light of the elevated household debt, the central bank is closely

watching the response of the economy to higher interest rates.

     Going forward, CMHC expects housing starts to decrease, including in

British Columbia and a lower trend in Ontario.

     CMHC assumes a real GDP growth rate between 2.4% and 3.2% in 2017 and 1.2%

to 2.5% in 2018, compared to 3.1% and 2.1%, respectively, projected by the BOC.

In 2019, CMHC expects real GDP growth to slow further to a range of 1.0% to

2.4%, compared to 1.5% for the BOC.

     Still, "the growth in population and near-record growth in immigration will

continue to have a positive effect on housing starts over the forecast horizon,"

the agency said, also expecting support from employment growth.

     However, it expects this effect to level off by the end of 2019.

     Overall, CMHC expects housing starts to range between 192,200 and 203,000

units in 2018 and 192,300 and 203,800 units in 2019, down from 206,300 to

214,900 in 2017.

     On the resale market, the gradual increase of mortgage rates should weigh

on activity, CMHC said, with prices continuing to rise but at a slower pace. The

agency expects the 5-year mortgage rate to rise from 4.60%-5.0% this year to a

range of 4.90%-5.70% in 2018, and 5.20%-6.20% in 2019.

     Existing home sales are expected to be between 493,900 units and 511,400

units in 2017, between 485,600 units and 504,400 units in 2018, and between

484,700 and 509,900 in 2019. 

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com

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