Red Alert in Kitchener-Waterloo?

Cliff Rego
Published on November 1, 2016

Red Alert in Kitchener-Waterloo?

Last week, the Canada Mortgage and Housing Corporation (CMHC) announced that many of Canada’s housing markets are currently overvalued and issued a “Red Flag” for the Canadian market as a whole:

cmhc-chart

Naturally, this caused some alarm.

While Kitchener-Waterloo is not one of the markets being assessed (see above), it’s understandable that the nature of this announcement would cause a stir among prospective buyers and sellers. As a result, we’ve been asked a lot of questions about what the CMHC’s assessment means to our local market.

Here are our answers to the most common questions:

GTA is labelled “Strong Problematic” – will that impact us in K-W?

Toronto been rated overvalued/overheated by CMHC for a long time – that’s nothing new. But even this updated warning doesn’t come with a forecasted correction or crash.

In fact, the chart below shows that CMHC actually sees prices continuing to increase country-wide – in their worst-case scenario:

cmhc-graph

The fact that they’re not forecasting prices to drop nationwide or in Toronto specifically only serves to make Kitchener-Waterloo-Cambridge that much more attractive to GTA buyers. Don’t expect prices to drop off Canada-wide (on average), in Toronto or here in K-W.

Kitchener-Waterloo-Cambridge isn’t on the list – why not?

We’re a large enough market population-wise to warrant our own assessment, yet we’re not really in the conversation. This is likely because we are in the sweet spot: just close enough to Toronto to get some runoff from the GTA market, but far enough to prevent a mass migration that would make prices skyrocket. (After all, not everyone has the stomach to commute from Townline to Spadina.)

While direct mass transit solutions could remove this hurdle down the road, for now the fact that we’re not on the list – and not mentioned at all – should be somewhat comforting to local buyers and sellers that our market ins’t overheated.

Is there a concern with our market’s 2016 market price increase?

Not yet.

Kitchener-Waterloo is up about 10% after years of steady 3-4% increases. While this is a bit of a shock to locals, it’s not an immediate cause for concern. Here’s some context:

The markets you always hear about being overheated – Vancouver and Toronto – have increased 25% and 15% this year, respectively. Homes in these markets have been increasing in value at a much faster pace than those in Kitchener-Waterloo for YEARS.

At an average home price of around 380k, which is much lower than in neighbouring markets, homes are still relatively affordable: we have room to grow. If our market increases by 10% or more every year and current supply-demand conditions persist, perhaps CMHC will take a closer look at K-W.

In summary:

CMCH’s announcement sounded sensational, but wasn’t the bombshell the headlines made it out to be.

The major Canadian markets are hot, demand for homes outweighs supply, homes have become less affordable, home prices will continue to increase.

The good news for Kitchener-Waterloo: despite the recent sharp increase in home values, our cities continue to present relatively affordable options for buyers compared to neighbouring markets. As long as other markets continue to increase in price, this will continue to be the case.

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