Housing market outlook upbeat despite ‘overvaluation’

CMHC projects continued real estate gains in Metro Vancouver

Bob Dugan, CMHC chief economist.




A new market outlook from the Canada Mortgage and Housing Corp. predicts higher real estate prices, housing starts and sales this year in the Lower Mainland, despite what it flags as “problematic price acceleration” near Vancouver.

“There is evidence that overvaluation is detected in the Vancouver housing market,” according to the CMHC report.

It forecasts the average MLS resale price across all home types in Metro Vancouver will continue to climb from $903,000 in 2015 to between $1.022 and 1.128 million in 2016 and to between $1.045 and 1.179 million in 2017.

The CMHC report said the gains could be at the lower end of that range if there’s easing of what it calls the imbalance between current elevated house prices and what’s supported by underlying fundamentals.

“Alternatively, in the absence of a shock to trigger this scenario, the province’s housing market would see levels of starts, sales and prices in the upper part of the wide ranges.”

The report said threats that could dampen the market include the growing number of highly indebted households that will be more vulnerable to job loss or a jump in interest rates, as well as a sharper-than-expected slowdown in economic growth in China, which would ripple through the Canadian economy.

RELATED: B.C. changes rules to stop real estate ‘shadow flipping’

Metro Vancouver home prices were up 26 per cent in the first quarter of 2016 compared to a year earlier.

The CMHC expects more listings over the next 18 months, as prospective sellers are attracted by the recent steep price jumps.

But it notes some sellers may be hesitant to list their homes if they’re unsure if they can find another home in the region. Others willing to relocate to another region will see it as an opportunity to cash in on high prices.

“Single detached homes, particularly in central locations, will continue to attract high net worth buyers, both local and offshore,” it predicts.

The price gains for detached houses have outpaced condos in Metro Vancouver. That’s been most noticeable in suburbs, where house prices have climbed at more than twice the rate of apartment condo prices, while the gap in outsized house gains has begun to narrow in Vancouver and West Van, where apartment price gains have lately been higher than houses.

Average rents in the region are forecast to climb by close to three per cent a year.

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