Locals give collective snort of derision as Crown corp describes market as “not problematic” – but it depends on your point of view
Earlier this week, the Canada Mortgage and Housing Corporation released, with customary pomp that included a nationwide media conference call, its latest quarterly Housing Now report.
For the uninitiated, these reports examine 15 key Canadian housing markets, including Vancouver and Victoria. They assess how much these metropolitan areas are demonstrating each of four factors that put them at risk of a housing bubble:
overheating of demand (demand significantly outpacing supply);
acceleration in the growth rate of house prices;
overvaluation in the level of house prices; and,
overbuilding of the housing market (supply significantly outpacing demand, which can reflect excess new construction and/or a decline in demand).
On balance, given all four factors, the CMHC said that there was “weak evidence of problematic conditions” in Vancouver’s housing market.
Reporters on the conference call scoffed audibly at this assertion. “Problematic” for whom, exactly?
After all, it is pretty clear that a an awful lot of people are finding our real estate market pretty problematic – primarily first-time buyers, low earners, disadvantaged locals and growing families. No surprises there.
No, what the CMHC is basically saying is that the Vancouver market is not problematic for the CMHC. Not problematic for the government. They’ve taken a look at our city, its high house prices, its seemingly insatiable demand for real estate, its growing population and its economy, and figured that Vancouver will take care of itself. (Same goes for Victoria, by the way.)
On the flip side, the corporation is pretty worried about Toronto, Winnipeg, Saskatoon and Regina, all of which were found to be displaying “strong evidence of problematic conditions.” In other words, a poppable bubble is much more likely in these cities, even if average prices are lower than ours.
Of Toronto, the report said, “Inventories of both new and existing single-detached homes have been declining, which has contributed to rapid price growth in this segment. The continued rise in house prices has not been matched by growth in economic and demographic fundamentals, giving rise to strong evidence of overvaluation.”
A lot of people might argue that the same could be said of Vancouver. But the CMHC’s assessment of our city is that the “economic and demographic fundamentals” are growing in line with the prices we’re seeing. It does note for Vancouver that there is a slightly increased risk of overvaluation (from low to moderate) since the last quarter, as prices have increased further with no corresponding economic growth. But on the whole, the CMHC is saying, no need to worry.
Now that might seem pretty dismissive, at least to those out there who are struggling to get into or move up in our market. But rather than get mad at the CMHC for its “Ah, you guys are fine” attitude, those who are smart will sit up and listen.
After all, you have to hand it to the CMHC – its forecasts have rarely been out of line. Whether predicting house prices rises, home sales or housing starts, it is usually on the money. There are a lot of very smart researchers and economists putting together these reports.
So then, if the CMHC is right, what can people do with this information? If there really is no bubble, no overheating, no overbuilding, steadily rising home prices but no scary acceleration of the growth rate – what then?
Well, for those people who are already in the real estate market and comfortable with their homes, it’s great news. And come on folks, let’s not dismiss existing homeowners – they have needs too. We don’t want there to be a bubble in Vancouver real estate that pops. We are not hoping for a housing market crash here. To see billions of dollars of equity built up by hard-working local families wiped away would be utterly devastating. So if prices continue to rise, perhaps at a slowing pace (as the CMHC predicts), that’s got to be the best-case scenario.
No, we must not hope for lower average prices to be the answer for those people struggling to get their foot on the property ladder. For those people, innovative solutions and government-funded programs are required. If the new Liberal government delivers on its housing promises, that will help (more on that here). I also have some suggestions in a previous editorial that I won’t go into now.
The other thing that is needed is a reality check among locals. An adjustment of expectations. If the CMHC is right (and it usually is), this supposedly “crazy” market is not crazy at all. It’s the new normal. If you are a low, or even an average, earner who has no additional personal wealth, you will never be able to buy a single-family home in a desirable, central neighbourhood. There are many great options out there for you (truly, there are), but that is simply not one of them.
This city is changing. Change with it. Otherwise, you’ll be the one with the problem.