CMHC plays catch-up with vaguely alarming house price warning

Canada's federal housing agency says there is rising evidence of risk in the country's real estate markets as home prices have climbed faster than income and population growth.

Canada's federal housing agency says there is rising evidence of risk in the country's real estate markets as home prices have climbed faster than income and population growth. (Canadian Press)


Warnings about the Canadian property market are nothing new. International business publications and global banks have been calling it a bubble for years.

Nobody listened.

Now that the Crown corporation that insures residential mortgages, the Canada Mortgage and Housing Corporation, has added its voice with what turns out to be a mushy and moderate warning, will anybody listen?

Dire warnings

Warnings in the past have been dire. Swiss bankers UBS have called Vancouver a bubble risk unmatched on the planet. The giant German institution Deutsche Bank said in January 2015 that the Canadian housing market was 63 per cent overvalued.

The rich countries' think-tank, the OECD, has warned of the threat repeatedly. The Wall Street Journal and the Economist predicted a collapse before 2012.

I know that because my own annual warning that year, "Be Very Afraid of the Canadian Housing Bubble," referred to those previous warnings.

Proposal in a Toronto window 1

A wedding proposal appears in the windows of a Toronto condo tower. Fewer couples can afford detached houses in the overheated market. (Dave Cheng)

Only last week, CMHC CEO Evan Siddall announced a "red warning" of his own in a commentary published in the Globe and Mail.

Surprisingly weak

When we finally saw the CMHC reports yesterday and listened to an abbreviated telephone conference with the agency's economist Bob Dugan — cut off early before many of us could ask our questions — the warning was surprisingly weak.


Overvaluations are strong according to this CMHC chart, but the agency's warnings are not. (CMHC)

Although there were lots of red marks in the CMHC's assessment of the Canadian property market, the overall conclusion was as far away from a 63 per cent correction as you could imagine. In fact, it seemed to say that in most places the property market would continue to rise before going flat.

Overvalued? What?

To many critics it might seem absurd that after property prices have been rising between eight and 25 per cent for years the CMHC is only now discovering overvaluations are in the "red" category.

In its outlook for the coming years the CMHC's analysis was no more terrifying. In an innovative statistical flourish, the housing agency prediction included two sets of data, a narrow likely path in grey and the wild and crazy outer range indicated with dotted lines.

CMHC graph

Despite the media talk of red warnings, CMHC graph suggests Canadian house prices will rise further. (CMHC)



As CMHC economist Dugan said in his conference call, predicting the effect of housing market risks is difficult.

"These risks include things such as uncertainty with respect to the future path of oil prices, upside and downside risks to U.S. and world growth," said Dugan. 

What's the worst?

As you see above, the CMHC's thinking shows that even if oil prices crash or a booming U.S. economy sends interest rates into the stratosphere, the worst possible forecast for Canadian house prices is that they will continue to rise at about the same rate.

Anyone considering buying or selling should take a look at the two reports (see links posted on this page) in detail. They are not long, are clearly written and easy to digest.

If you take the CMHC analysis at face value, you should not expect to be scared out of the property market any more now than when I told you to be afraid in 2012. And if you laughed off Deutsche Bank's 63 per cent warning, maybe you'll be rushing out to up your stake in Canadian houses.

But there is another way to view the CMHC's report that was hinted at, though not explicitly stated, when my colleague CBC Business reporter Jacqueline Hansen phoned to squeeze in a question that had been cut off in the conference call.

It is that the CMHC seems to realize that, after years of being a property market booster, taking a sterner line on the future of Canadian houses will have an effect of its own, especially after its red alerts have been amplified through the media.

There is some danger that being overly gloomy could cause a bubble, if there is a bubble, to burst, driving the economy into a tailspin. Of course no one knows whether a delayed reaction to the latest round of government rules to slow the house market could still have that effect.

If so, we will be glad that the CMHC's change of tune, the soothing concession that house price increases could slow and maybe even stop, was not more frightening.

You just wonder why the CMHC couldn't bring itself to say it a few years ago before houses got so dangerously overvalued.

Follow Don on Twitter @don_pittis

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