Housing Markets In Canada Are Overvalued, CMHC Reports
TORONTO - A growing number of Canadian housing markets are overvalued, either because the cost of buying a home has ballooned or underlying economic conditions don't support current prices, according to a new report from the federal housing agency.
In its latest housing market assessment report released Thursday, Canada Mortgage and Housing Corp. has identified 11 markets where it has found evidence of overvaluation.
That's up from the eight markets the federal agency deemed as being overvalued in its last quarterly report in August.
In some markets, notably Toronto and Vancouver, overvaluation reflects the fact that home prices have been climbing rapidly, said CMHC chief economist Bob Dugan.
In others, like the oil-price dependent markets of Regina, Saskatoon and Calgary, it's because underlying economic and demographic factors needed to sustain current home prices — such as personal disposable incomes, mortgage rates and population growth — have deteriorated.
"In places like Regina, we still detect overvaluation in that centre, but we've actually seen buyers' market conditions ... and some softening of prices," Dugan said during a conference call.
CMHC's housing market assessment report aims to serve as an early warning signal by identifying problematic conditions that, if left unchecked, could lead to a correction in home prices later on down the road.
The agency uses four factors to identify the level of risk present in Canadian real estate nationally and in 15 markets: accelerating price growth, overvaluation of prices, overbuilding and overheating of demand, which occurs when demand significantly outstrips supply.
CMHC says it has found strong evidence of problematic conditions in Toronto, Winnipeg, Saskatoon and Regina. All four of those markets show signs of overvaluation, according to the agency, and in Toronto, price acceleration is also present.
Winnipeg, Saskatoon and Regina show signs of overbuilding, which occurs when the supply of homes outpaces demand, in addition to being overvalued.
Saskatoon was not identified as problematic in CMHC's previous assessment, but was added to the list this time as signs of overvaluation emerged.