Halifax's rising house prices present increasing risk: CMHC
Assessment of vulnerability rises from low to moderate
After a year of rising housing prices and bidding wars in the Halifax market, the Canada Mortgage and Housing Corporation has elevated its assessment of the vulnerability of Halifax's housing market.
The main driver behind moving Halifax's rating from a vulnerability rating of "low" to "moderate" was CMHC's assessment of the overvaluation of the market, says senior analyst Kelvin Ndoro.
"So that means house prices were higher than levels supported by housing market fundamentals," Ndoro said.
Those fundamentals include the amount of disposable income in a given city, population level and increase, interest rates and employment.
In other words, Halifax house prices are moving beyond what's considered affordable for people who live in the area.
According to the CMHC, average house prices from the MLS realtor system increased 19 per cent in the third quarter of 2020, as compared to 2019.
Overvaluation is one of four indicators that CMHC uses to assess the state of a city's housing market, and two of the others are also edging upward.
"In addition to that, the other two indicators of price acceleration and overheating were slightly below the threshold that would signal vulnerability," Ndoro said.
In Feb. 2020, the CMHC rated Halifax's vulnerability as "low" on all indicators. Ndoro says the pandemic may have contributed to the change, but he does not believe it is entirely responsible as the trend began before COVID-19 arrived.
"Some of the vulnerabilities were already noticeable before the pandemic hit. We assess intensity and persistence as well. So it takes a while before we flag vulnerabilities, that is, when they have passed a certain threshold," he said.
The CMHC must see activity above a certain threshold for two quarters in a year before it upgrades risk, and Ndoro says this has been building for "three or four quarters" of the last year.
Interprovincial migration during the pandemic has played some role, with more people arriving from Ontario and British Columbia than compared to last year.
"I think what's happening is, the pandemic has had uneven impacts on the population. So it's affecting different segments of the population disproportionately," Ndoro said.
"Those people in the medium to higher income brackets, so to speak, have not necessarily been impacted as much by COVID. And given that the mortgage rates are so low, those people are able to take advantage of that and increase demand. So that's why we're seeing some of what we're seeing."
Ndoro said that if he continues to see overvaluation over the CMHC's acceptable threshold in the next quarter of the year, he thinks there's potential to elevate Halifax to a "high" level of vulnerability.
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