Victoria’s housing market is stable now, but the region could soon be dealing with price acceleration and overheating, according to a study released Wednesday by Canada Mortgage and Housing Corporation.
The third quarter housing-market assessment labelled Victoria as moderately vulnerable, the same label it got in the second quarter of the year, as there was little evidence of price acceleration, overheating or overbuilding, although there was some evidence of overvaluation.
Overvaluation occurs when house prices remain significantly above the levels warranted by personal disposable income and other demographic factors.
CMHC market analyst Pershing Sun said the assessment’s multiple models show the actual prices paid for homes have surpassed the threshold of what the local economy can theoretically sustain. The result is that Victoria is moderately overvalued, which tips it into moderately vulnerable status.
But the main takeaway from this quarter’s assessment is that Victoria is trending in the wrong direction.
“Although the ratings didn’t change, the trend of data is trending up to overheating and price acceleration, though we haven’t reached the threshold where we would change the label,” she said. “The trend is up and we have to keep a close eye on those issues.”
Price acceleration occurs when the growth rate in house prices continuously increases to the point they are not sustainable.
Overheating is caused by demand significantly outpacing supply of housing in the resale market.
That has certainly been the case this year. After a near shutdown of the real estate industry for two months in the spring, it roared back with strong sales figures and increasing prices through November.
“The main story of the Victoria housing market is demand is extremely high, especially for single-detached homes,” said Sun, noting demand is approaching the record year of 2016. “This is definitely causing prices to increase in that segment.”
What happens to the market in 2021 depends on mortgage rates, since low and stable rates are driving the current market, Sun said.
“Cheap money is motivating a lot of home buyers to enter the market. It is hard to say how long that will remain. It will depend on how long it takes the economy to recover.”