Housing Market Assessment Factors

Comparisons between the October 2017 and January 2018 reports. Source: CMHC Housing Market Assessment for Canada, January 2018

People ask us all the time what the chances are that there will be a market crash, or some sort of major housing correction.

We aren’t psychic, and we don’t pretend to have a crystal ball.

When we invest, we plan for the long-term, and we do our best to make sure we’re in a good position if anything were to happen to the housing market. Still, we think it is incredibly valuable to know what is going on in the market, so we can make informed decisions and plan for our future.

One of the ways we stay up-to-date on the health of the housing market is through government assessments.

Canada Mortgage and Housing Corporation (CMHC) releases a quarterly Housing Market Assessment (HMA) for Canada and major cities. The assessment looks at the vulnerability of the housing market on a national and local level.

There are several problems the assessment could highlight about the market...

House prices may not match the true value of the property.

There may be a supply and demand discrepancy.

Prices could be going up or down too quickly or for too long...

These problems could all be signs of a larger market problem, such a market crash, or that the market is inaccessible for residents.

These assessments are used by the Canadian government when deciding if they need to implement new housing policies, as they did in the spring of 2017. A high vulnerability rating doesn’t guarantee government action, but these are the factors that will be examined before any new housing rules go into effect.

The assessments themselves may not directly afford homeowners, but they are a way to inform the public of the current status of the market, which will affect everyone.

One way it can affect homeowners is when these assessments show discrepancies with market pricing compared to what the government assesses true values to be, it can spark pricing corrections. It’s also good for buyers, especially investors, because it can give you a better idea if a cities prices are justified, or if they are overvalued.

Knowing the importance of these assessments, how do they actually measure a city’s vulnerability? There are four main vulnerability factors assessed, overheating, acceleration in house prices, overvaluation, and overbuilding.



Overheating is measured by supply and demand, more specifically by the number of listings compared to sales. If a high percentage of listings are selling, it’s a sign that there is too much demand and not enough inventory to meet that need. On the other side of things, if there is a low sale to listing ratio, it’s an indicator that the market has too much inventory for the number of buyers. A high demand to supply ratio over an extended period is going to accelerate the rise of prices. To correct an overheated market, demand needs to go elsewhere, or there needs to be an increase in supply.

As Toronto became increasing overheated in recent years, there has been a large spill over to neighbouring cities, and as those cities became too hot, they have continued to move outward. That’s why cities like St. Catharines, Thorold, Cambridge/Kitchener/Waterloo, Barrie, etc. have seen such high growth rates in the last few years.


Acceleration in House Prices

In a healthy market, house prices are expected to rise year over year. The growth should be consistent with a household’s cost of living. The problem comes when prices continuously rise for an extended period of time, as it can result in the rate of house prices to grow at an accelerated pace.

This is what was happening Toronto and Hamilton through the beginning of 2017. Even now Toronto and Hamilton are still listed as moderately vulnerable in this category. That’s because house prices went up so quickly and continued to rise for such a long time. Now, homes are still at risk of continuing to go up simply because of the upward trend, and not because the higher prices are justified.



Right now, Toronto and Hamilton are categorized as highly vulnerable to overvaluation.

Overvaluation is when house prices are significantly higher than the fundamental housing market factors deem appropriate. These factors include income levels, population growth, as well as current and expected financing costs (interest rates).

If a city’s population is steadily growing, salaries are significantly increasing, and interest rates are stable, then a rise in prices is healthy. However, if house prices are exceeding the growth of the city, then there’s a risk that homes will become too expensive for its citizens, which is a problem.

The HMA compares actual house prices and what house prices should be according to the regions fundamental factors, and if there is a large discrepancy, the level of under or overvaluation is determined. 



Overbuilding is pretty simple to understand, and is very similar to overheating. The Housing Market Assessment looks at the number of vacant rentals, and completed and unsold housing units to determine if there is too much vacant inventory. If there is a high level of supply and not enough demand, then a city becomes vulnerable to overbuilding, which can drive down market prices.

This is happening in Edmonton, Calgary, Saskatoon, and Regina. There was a housing boom when there were plenty of jobs, but as the jobs left, so did the people. Now, these cities are overbuilt, and there isn’t a demand for all of the available homes.


These four factors can tell you a lot about the health of the city where you live, invest, or plan to invest. You can find the latest Housing Market Assessments here.

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