A clearer picture of Victoria’s housing market has emerged from CMHC’s new Housing Market Assessment. The report says:
“In the first quarter of 2018, models that detected overvaluation included a calculation of the carrying cost, explicitly, which is a key determinant for affordability.”
The new mortgage stress test and rising interest rates are having a significant impact on affordability and sales. Sales have declined since the implementation of the stress test in January 2018.
“While recent increases to the interest rate have negatively impacted affordability, other demand fundamentals supported growth in house prices. The young adult population grew faster than the general population and real disposable income increased.”
Interest rates have also eroded affordability while the millennial population continues to grow, secures good-paying jobs and starts families. They are growing faster than the general population and are the real cause of demand. We described this in our column Boom, Bust & Echo, Summer Reading for BC Govt. This strong demand for housing continues to drive housing prices, along with govt imposed regulations, restricting growth, slow permit approvals (except Langford) and high DCC & permit fees – as presently underway in Saanich. The BC govt’s Speculation Tax and School Tax are simply cash grabs diverting the public’s attention from the real issues. Millennial demand for housing was predictable and should have been addressed via regional planning. Read Boom, Bust & Echo, Summer Reading for BC Govt.
“Models that do not contain a carrying cost term, but utilize only demand and supply fundamentals like employment and population growth, have not indicated overvaluation in Metro Victoria.”
This reinforces that new mortgage rules and rising interest rates are driving the overvaluation designation. We predicted this at our Crystal Ball Housing Forecast in January.
Layering new mortgage rules and rising interest rates along with rising govt permit fees and restrictive zoning combine to continue to erode affordability in Greater Victoria. There is little evidence of overbuilding in Victoria according to CMHC.