Edmonton houses are displaying no indicators of overheating

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CMHC rates the market risk as moderate

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Joel Schlesinger for the Edmonton Journal CMHC rates the market risk as moderate CMHC rates the market risk as moderate Photo from Canadian Press /Postal media

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The city’s real estate market has moderate risks of developing problems in the short term, a new report shows.

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Canada Mortgage and Housing Corp. published its housing market assessment for the first quarter of 2021 and showed that the city as a whole has a moderate risk of negatively impacting financial stability.

That’s more than in the fourth quarter of last year, when the overall risk was classified as low.

“The two biggest problems we had in the market were overvaluation and overstocking, which together resulted in the market moving from a low to a moderate overall valuation (vulnerability),” said Christian Arkilley, senior analyst at CMHC.

Despite the increase in risk, he notes that the market is in relatively good shape with no signs of overheating or price acceleration. In contrast, other markets in central Canada – above all Ottawa and Montreal – harbor moderate risks of overheating and price acceleration.

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Edmonton’s overstocking and overvaluation metrics were at moderate risk, the report said. The excess inventory was due to rising rental vacancies of over seven percent in the last quarter of 2020, although the newly added housing stocks, another factor in the calculation, declined.

The overvaluation was also associated with a moderate risk, despite low interest rates, compared to a low risk in the last quarter. Arkilley notes that the assessment is due in part to the fact that disposable income is not growing as much as home prices, and in part to the impact of the pandemic on low paid workers.

“If we see house prices above levels that can be supported by disposable income, population and interest rates, then we are dealing with an overvaluation.”

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Still, it’s a moderate risk, he adds.

The fundamental factors driving housing construction – interest rates, population growth and disposable income – are currently creating a gap in market conditions, he notes. Low migration and slow employment growth result in low rental demand, while interest rates stimulate home ownership.

Although the valuation is based on the last three months of 2020, the current market remains in good shape despite increasing demand, says Tom Shearer, chairman of the Realtors Association of Edmonton.

“All of the things that drove the real estate market up like crazy elsewhere happened here too, but because we’ve been in such a tough spot for the past five years, we’ve been relatively balanced.”

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Demand for new build and resale properties has clearly exceeded supply in recent weeks, he adds.

“But prices are still reasonable in the city where we are at a point where the average price is $ 456,000.”

Shearer adds that conditions continued to heat up in March, with one in five homes sold exceeding asking price.

“It’s the best activity we’ve seen in a long time,” he adds. “But in an overheated market, I would say that half of the transactions are over the asking price.”

Although the market is hotter now than it was three months ago, Shearer notes that the CMHC rating is still correct. He notes that the market could go either way in the coming months. It could cool off as supply rises with the busy spring season, or demand could continue to outpace new offers. But despite increasing demand and listings that have not yet kept pace this year, there have not yet been any significant price jumps.

“It’s not the outbidding and outbidding of all the other buyers out there that’s happening in other Canadian cities,” says Shearer.

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