CMHC Sounds Alarm As Halifax Home Prices Smash Records
HALIFAX — As skyrocketing home prices in Halifax continue to smash records, the Canadian Mortgage And Housing Corporation is warning of vulnerabilities in the city’s housing market.
According to the Canadian Real Estate Association, the average home in Halifax sold for $297,466 in August, compared to $239,758 in August of 2019.
That means that, in a single year, the average price of a home in Halifax jumped by nearly one-quarter. It was a trend that began before Covid-19 but has only been accelerated by the pandemic.
That trend, among others, led the CMHC to flag Halifax’s housing market as vulnerable in its most recent housing market assessment. In particular, the report says homes in the city are being sold for more than they’re worth.
Kelvin Ndoro is a senior market economist at the CMHC. He explains that the CMHC uses “key indicators” like population growth, employment, disposable income, and interest rates to calculate how much homes in a city should cost.
Ndoro says that, even before Covid-19, those indicators in Halifax were showing signs of imbalances.
“House prices have been increasing in Halifax for quite a few quarters now but at the same time… employment had been declining and personal disposable income, which is also a key factor, has actually been declining,” he says.
“When you look at those fundamentals and then you compare that with house prices continuously going up, that’s when we say there’s over-evaluation,” he says.
But the vulnerabilities in Halifax’s housing market run even deeper. Ndoro says “price acceleration” and “overheating” are also reaching concerning levels.
Although the CMHC report marked both indicators as “stable,” Ndoro says they barely squeaked under the threshold that would bump them up to moderate risk.
“They haven’t passed the threshold yet, but they are very close,” he says. That, combined with over-evaluation already passing the threshold, is why the CMHC flagged the Halifax’s overall housing market as at risk.
Will Prices Go Back Down?
When Covid-19 shut down large swaths of Halifax’s economy, many who had been trying to sell their homes took them off the market.
This led to a major supply problem that created bidding wars and started the price escalation still gripping the city.
As prices have gone up, more and more homeowners have started putting their houses up for sale, in the hopes of getting extra value for their homes.
Last month, the CREA says 1,864 people put their homes up for sale. That’s almost 19 percent more than last year and more than any other August in the last five years.
But that still hasn’t relieved the supply problem. The CREA says that the number of homes on the market hasn’t been this low since 2005. Active residential listings numbered 4,316 units at the end of August, which was 34.6 lower than August of last year.
Ndoro isn’t surprised by this. He says there was so much demand pent up during June and July that the corrective price influence of new listings just isn’t being seen.
So will the fever in the market break? And if so, when?
In April the CMHC released a report that predicted home prices would fall across Canada at the end of 2020 as the economy continues to sputter from the effects of the pandemic.
Although a lot has changed since April, Ndoro says the predictions laid out in the report remain true.
That reported anticipated a “broad range of risks for the economy” in the last quarter of 2020 and Ndoro says those risks still haven’t been resolved.
Deferred mortgages will soon be due, employment levels haven’t yet returned to pre-pandemic levels, and government supports are beginning to run out. All that has an impact on people’s incomes.
“When people are making decisions on a durable good like a house, they don’t base that decision on supplementary income, they base that decision on their long-term income,” he says.
On top of that, there’s no way to know what the second wave of Covid-19 will look like, and how much of an impact it will have on the economy.
“Given all these inherent risks, we still stand by [our conclusions],” Ndoro says.