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Business Briefing How vulnerable is your housing market? Check out this cool-to-hot heat map of 15 Canadian cities

Briefing highlights

  • How vulnerable is your market?
  • Markets cap a dramatic week
  • Canadian dollar down to about 76 cents
  • U.S. economy grows 3.5 per cent
  • Rogers nears sale of magazines

Housing vulnerabilities

Canada Mortgage and Housing Corp.’s latest evaluation of the housing market still shows “a high degree of overall vulnerability.” But, as always with these things, it’s all about location, location, location.

Particularly Vancouver, Victoria, Toronto, Hamilton, Edmonton, Calgary, Saskatoon, Regina, Montreal and Winnipeg, which is a lot, to be sure.

CMHC’s quarterly report comes as most markets are generally deemed to be stabilizing, though affordability and mortgage debt remain key issues.

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The study “continues to indicate a high degree of overall vulnerability at the national level,” the federal agency said.

“However, conditions of overvaluation are easing for Canada as a whole.”

There are several reasons for this, notably the federal bank regulator’s new mortgage-qualification rules, which depressed markets when they came into effect at the beginning of the year.

“Taken together – tighter mortgage rules, rising interest rates and weaker growth in inflation-adjusted personal disposable income – likely led to reduced demand for housing, resulting in a the decline of house prices,” CMHC said, noting that the MLS home price index fell 8.7 per cent in the second quarter from a year earlier when inflation is taken into account.

“A compositional effect in the type of units traded – a decline in sales of more expensive single-detached homes – is also dampening the MLS average price.”

Here’s CMHC’s heat map of vulnerabilities:

Housing market vulnerabilities

Comparisons between July and October, 2018

Degree of vulnerability:  Low  Moderate  High
Overheating Price acceleration Overvaluation Overbuilding Overall
July Oct. July Oct. July Oct. July Oct. July Oct.
Canada
Victoria
Vancouver
Edmonton
Calgary
Saskatoon
Regina
Winnipeg
Hamilton
Toronto
Ottawa
Montreal
Quebec
Moncton
Halifax
St. John's

CMHC’s study follows the Bank of Canada’s views earlier this week, when it raised its benchmark overnight rate to 1.75 per cent, citing a better outlook but trouble still on the consumer debt front.

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“Governing council has been assessing how people are adapting to both higher interest rates and the changes to mortgage underwriting guidelines implemented earlier this year,” said senior deputy governor Carolyn Wilkins.

“We have seen that households are adjusting their budgets largely as expected,” she added.

“We understand that this can be difficult, particularly for those who are highly indebted. At the same time, employment and incomes continue to grow, which can help to cushion the adjustment process.”

Notably, Ms. Wilkins cited the improvement in “the quality of new debt” and the moderation in housing markets to “a more sustainable level.” She also said the new rules “appear to have helped take the wind out of the sales of speculators in some markets, which reduces the pressure on housing affordability.”

Federal and provincial policy makers had been aiming for a “soft landing” in the country’s housing markets, and things so far point in that direction.

Markets have largely stabilized, the central bank said, and borrowing has been tamed. In particular, the share of new mortgages with high loan-to-income ratios, notably those above 450 per cent, has declined.

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Closing out the week

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U.S. GDP up 3.5 per cent

American consumers helped power the U.S. economy to a strong third-quarter showing.

The economy expanded at an annual pace of 3.5 per cent as household spending rose 4 per cent, according to the latest numbers released today.

“If second-quarter growth was a grand slam, the U.S. economy hit for at least a triple in Q3,” said Royce Mendes of CIBC World markets, noting both that spending advance and the change in inventories.

“The other major driver of growth was a robust rebound in inventories, which had seen a drawdown in the prior quarter as foreign buyers pulled ahead purchases in an attempt to get ahead of their own country’s retaliatory tariffs on U.S. goods,” he added.

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