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Assessment model highly problematic
Nov 13, 2015

A real disconnect occurs when the same corporation puts out one news release saying everything is fine and another release that says quite the opposite, indicating we are a housing market experiencing strongly problematic conditions. Which is it?

When CMHC released its Fall 2015 Housing Market Outlook for Winnipeg’s Census Metropolitan Area (CMA), it was quite positive about MLS® sales and average sale prices performing better in 2015 than last year and seeing some increases in both 2016 and 2017. That’s nothing earth-shattering, as Winnipeg’s market came down off its lofty perch in 2011 after years of very tight market conditions when prices did spike upward more than normally expected.

As we soon approach 2016, we are able to say that for the last five years, Winnipeg’s MLS® market  has settled down to the point that the market is far more balanced and prices have clearly leveled off. Yet, we have CMHC saying there is strong evidence of problematic conditions, reflecting its detection of overvaluation (inflated house prices) and overbuilding (supply significantly outpaces demand).

Only four criteria are used to determine Canadian major market housing problems. Beyond the two above, which Winnipeg is noted for having problems with, there is overheating (demand significantly outpaces supply) and price acceleration (house prices rise too fast).

One thing we have been able to detect in trying to understand CMHC’s new housing market assessment model is that it has an historical bias. For example, in its most recent report looking at the 2015 third-quarter market activity, reference was made to Toronto’s price bubble in the late-1980s.

Let’s talk about price overvaluation.  If our prices are too high, you would think mortgage arrears would be up, as mortgage holders would not be able to meet their higher mortgage payment obligations. This is hardly the case when you look at the Canadian Bankers Association residential mortgage arrears chart for Canadian provinces. Manitoba had 0.27 per cent of its mortgages in arrears at the end of July 2015. In actual numbers, this arrears percentage represents 325 mortgages out of 120,811.

Historically speaking, this is nearly as low as it gets for Manitoba and this rate has been higher in earlier decades, such as the 1990s and the early part of the first millennium decade. It actually has been down to 0.19 per cent at the end of 2007 and then again in spring 2008, but the difference is hardly significant when it is at such a low level.

Only Ontario presently has a lower mortgage arrears rate than Manitoba at 0.15 per cent.

What about Manitoba mortgage holders in general? How they are doing? Manitobans have the lowest personal debt per capita in Canada. This statistic includes personal loans, credit cards and mortgages held at commercial banks. Manitoba’s personal debt per capita is estimated at $23,390 on average in 2015. This compares very favourably to the $44,396 for Canada overall.

Manitoba now has the lowest unemployment rate in Canada at 5.3 per cent. Supportive of a lower unemployment rate is strong job creation. Manitoba has the strongest growth in employment in 2015 and that includes the strongest private sector employment. Average weekly earnings are growing faster than the national average. Most people, especially REALTORS®, know that real estate is local and that job growth is critical to the prospects for any local market.

Population is another determinant of housing demand, as CMHC clearly recognizes in its positive housing outlook report for Winnipeg. It has been noted Manitoba has the second highest population growth in Canada.

As for oversupply, Mike Moore, president of the Manitoba Home Builders’ Association, said  in a Winnipeg Free Press column he wrote entitled, Problematic Housing Conditions or Problematic Research? that CMHC’s assessment of overbuilding is based “solely on the multi-unit sector and projects in the planning stage.”

If you consider WinnipegREALTORS® MLS® breakdown in terms of property-type market share, single-family homes represent 75 per cent, or three out of every four homes. Condominium sales, while important, are far back at only 12 per cent of total MLS® sales. So, while not denying condominiums are likely oversupplied at the present time, adjustments will be made in due course.  This will always be part of any market where demand and supply ebb and flow.

Should alarm bells ring out for an entire housing market which has consistently shown steady results for the past number of years based on strong economic fundamentals? Absolutely not!

CMHC’s updated housing outlook market reports continue to deliver good market analysis and hold credibility in our local market place.

As for the new national assessment model, let’s just leave it as highly problematic in its shortcomings to classify an entire housing market such as Winnipeg’s as showing strong evidence of problematic conditions.