Canada’s housing agency is issuing its first ever “red” warning, as the impact of Vancouver and Toronto’s scorching housing markets begins to spill over to the rest of Canada.
Canada Mortgage and Housing Corp. president and CEO Evan Siddall made the announcement in an opinion column in The Globe and Mail.
“High levels of indebtedness coupled with elevated house prices are often followed by economic contractions,” wrote Siddall.
“The conditions we now observe in Canada concern us.”
According to Siddall, the CMHC has recently noted “spillover effects” from Vancouver and Toronto into nearby markets.
“Concerns about elevated prices in Vancouver and Toronto are well-known,” wrote Siddall. “Affordability pressures hurt lower-income households the most and cause real socioeconomic consequences.”
“[These factors] will cause us to issue our first “red” warning for the Canadian housing market as a whole.”
The CHMC had already expressed concern in its July Housing Market Assessment, which serves as an early warning system when problems are detected in Canadian home markets.
At the time, the report went so far as to say the entire country was showing strong evidence for overvaluation, with Vancouver proving particularly “problematic.”
Earlier this month, the federal government changed mortgage rules under the advice of CHMC, tightening up tests imposed on first-time buyers taking out a mortgage.
Under the new rules, buyers with a downpayment of less than 20% of the purchase price must take out mortgage insurance, and their ability to pay back the mortgage must be tested against a higher interest rate than the one they are actually receiving.
Siddall says the changes will reduce home buyers’ ability to borrow and increase lenders’ funding costs, increasing mortgage rates “modestly.”
“We expect [these] actions to support our economy,” writes Siddall. “And tighter lending standards will limit price increases, ultimately making houses more affordable.”
“Seen this way, the resulting delay in when people can purchase their first home, or their decision to buy a smaller home, rent or stay put is rather a small price to pay.
The CMHC will release its next Housing Market Assessment on October 26.