Supply shortages again being blamed for driving up Lower Mainland housing prices

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VANCOUVER (NEWS 1130) – Increasingly out of reach prices continue to make it difficult to buy a home in the Lower Mainland.

The latest report from the Canada Mortgage and Housing Corporation shows a high degree of market instability for the seventh straight quarter because, partly thanks to new mortgage rules, houses worth less than $1 million are becoming harder to find.

The CMHC’s principle Vancouver market analyst, Eric Bond, says supply shortages are also driving up demand for homes not only in Metro Vancouver, but the Fraser Valley.

“Someone could choose to buy a smaller unit in a more central municipality or they could choose a larger property further away from the urban core, but really, pressures are more by price point because that is based on local incomes.”

Terms like “over-valuation” and “price acceleration” are again being used to describe the increasingly volatile market.

“The market for homes under $1 million. As I mentioned, [it’s] seeing quite a bit of pressure and so, we have sales in that category representing 70 per cent of overall sales at the end of March. Only 35 per cent of the listings currently on the market are under $1 million and so, you can see the pressure that is building in that market segment.”

Bond adds, even though the economy is strong, the average person isn’t earning enough money to buy here.

“What we have are tight market conditions, particularly for lower-priced properties and that has continued to exert upward pressure on the prices of homes and so, this has created affordability challenges for households with average local incomes. The local economy and people’s incomes, in Vancouver, do not fully explain the house prices that we see here and so, you have house prices 15, 20, 25 times local incomes and so, the market is over-valued.”

He says that’s not the only reason this marks the seventh straight quarter of instability.

“Rising mortgage rates and various regulatory changes eroding affordability and that led us to detect the housing market in Vancouver is over-valued relative to its local economy.”

The CMHC’s quarterly Housing Market Assessment also suggests the situation is worse in Vancouver than Toronto where demand isn’t as strong.

Researchers analyzed overheating, acceleration of home prices, overvaluations and overbuilding in markets across the country.

“There is a lot of demand for existing homes relative to supply and that is why the overheating indicator is high in Vancouver, Victoria, Toronto and Hamilton,” explains CMHC chief economist Bob Dugan.

“We have this constraint on the supply side, but at the same time, the local economies [in Toronto and Vancouver] have been very strong, generating a lot of jobs, attracting people to live in those markets, so there has been a lot of increase in demand in these markets, but without the supply, that demand goes into house price increases.”

Even though stricter regulations around uninsured mortgages from the Office of the Superintendent of Financial Institutions were in effect throughout the quarter, the CMHC report shows Toronto’s balance between supply and demand was not affected and the sales-to-new listings ration remained “virtually unchanged.”

However, Calgary, Edmonton, Saskatoon and Regina still fared much better because those cities have moderate vulnerability because of overbuilding.

Winnipeg, Ottawa, Quebec City, Moncton, Halifax and St. John’s, faced even less risk, earning a low vulnerability ranking.
Montreal also fell into that category, but Dugan says the CMHC might have to revise that assessment, given the rapid growth of house prices in some neighbourhoods.

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