The cost of properties is growing at a much higher rate than the income of residents of the greater Montreal area. In the context of an economic recovery, this has shifted the vulnerability of the housing market from “moderate” to “high,” concludes the Canada Mortgage and Housing Corporation (CMHC) in a new report.
The 50-page document provides a portrait of the state of the resale market across Canada, as well as in the main metropolitan regions of the country, including that of Montreal. In the latter, property values climbed 25% between the months of January and July, compared to the same period in 2020. Price growth which arises in the context of an upturn in employment andimmigration in the metropolis after the episodes of confinement experienced last winter due to the health crisis.
This acceleration in prices – at a much faster rate than it was before the pandemic – is in part attributable to “overvaluation imbalances” and moderate signs of “overheating”. This situation no longer affects only the heart of the metropolis, but also several towns located outside the island.
“We had price acceleration which was very strong in the suburbs,” in particular for single-family homes, notes CMHC economist Lukas Jasmin-Tucci on the sidelines of a conference call. A similar phenomenon is also being felt in the greater Toronto area, the report shows.
CMHC also notes that the growth in property prices in the greater Montreal area, as on average across the country, “does not match” that of various “fundamental factors” in the housing market. housing, as citizens’ income and economic recovery.
“The market is becoming more vulnerable to price increases which are unsustainable, and therefore which are too rapid compared to disposable income, for example,” explains Mr. Jasmin-Tucci.
The metropolis and its suburbs are thus becoming less and less affordable for its residents, which has prompted CMHC to raise the vulnerability of the housing market in this sector from “moderate” to “high”. He was considered “weak” barely two years ago.
“We go to the highest degree of vulnerability, so we send a message to the market”, indicates the economist, who hopes that this report will serve as a “warning”, both for decision-makers who can frame the real estate market by their policies as for real estate developers and buyers.
Montreal reaches “a critical threshold”
Last year, the pace of property sales in the greater Montreal area had exploded, in part due to many departures to the suburbs spurred by the desire of many Montrealers for a more spacious property in the era of telework. However, this pace has slowed since, when “the pool of potential buyers in Greater Montreal seems to be increasingly limited,” notes the report. Conversely, the number of listings of properties for resale on Centris “jumped” in the last quarter.
“You have to go back to 2016 to see such a large number of new registrations in a single quarter,” the document said. However, despite this reduction in the gap between supply and demand on the housing market in the metropolitan area, it remains “beyond the critical threshold”.
A scarcity effect therefore continues to persist at present, in particular because new constructions which abound in the region mainly concern the rental market, which has no effect on the supply of properties put up for resale, explains Lukas Jasmin-Tucci.
“We have a decrease in overheating, but the indicator is still high because we reached a peak last year [dans les ventes de propriétés], adds the economist. We remain in a situation where the market is very tight. “
The report also warns of an increased risk of real estate speculation, linked to the fact that more and more homeowners may be tempted to buy homes with the sole aim of making considerable profits by reselling them a few months later.
“This bull market context could lead to more rapid resales (within a year). These buyers have as only goal to obtain a significant and rapid monetary gain at the time of the resale. Such speculative purchases could thus amplify the acceleration of prices on the market ”, we can read.