Overvaluation warning for Canada’s hottest market

by Jennifer Paterson13 Aug 2015
Toronto has been added to the Canada Mortgage and Housing Corporation’s list of the country’s riskiest housing markets, with the insurer citing a combination of price acceleration and overvaluation.

“The rise in house prices have not been matched by growth in personal disposable income, giving rise to a modest risk of overvaluation,” said Bob Dugan, CMHC’s chief economist, in a press release, pointing to the Toronto market.

However, the CMHC did not indicated whether Toronto investors, agents and buyers should expect a deceleration in prices.

The CMHC’s latest House Price Analysis and Assessment (HPAA) framework, which is designed to detect the presence of problematic conditions in Canadian housing markets, also pointed to a high level of risk in Winnipeg, reflecting risks of overvaluation and overbuilding, and in Regina, reflecting price acceleration, overvaluation and overbuilding, particularly of condo apartments.

Both Winnipeg and Regina were highlighted as risky markets in CMHC’s last report, published at the end of April. 

“Nationally, CMHC continues to detect a modest risk of overvaluation,” said Dugan. “However, our overall assessment of the risk of problematic conditions varies from centre to centre due to regional differences in housing markets. Imbalances in local housing markets could be resolved with further moderation in house prices or improving economic conditions.”

According to the report, the risk of problematic market conditions continues to be assessed as moderate for Montréal and Québec due to the detection of some risk of overvaluation.

In Toronto, Ottawa and Montréal, CMHC is monitoring the risk of overbuilding, with condos under construction near historical peaks. “Inventory management is therefore necessary to make sure that these condominium units under construction do not remain unsold upon completion,” added the report.

Low overall housing market risk is observed for Vancouver, as none of the individual risk factors are currently detected.
 

COMMENTS

  • by Ovis Ghani 8/13/2015 1:46:49 PM

    Thanks to Chinese Investors and Builders who will build any thing if they see a vacant land

  • by Dee 8/15/2015 7:12:57 PM

    I can't agree with Ovis Ghani: I assume this is a sardonic response. When thinking of selling, consider this: would you show this and sell it to a close friend or family member? Probably not - that should be the litmus test.

    Vancouver market is a selling market unto itself, but can still experience serious overgrowth, over evaluation. With every BOOM! there follows a BUST. Now, it appears that only offshore buyers, Oriental and South Asian, are interested and can afford to buy Vancouver, North Vancouver and West Vancouver condos (since that is the current hot building market). They are looking at a short term investment to protect their money. Will not consider selling/reselling their properties. Supposedly purchased for family members, or young relatives attending university. Totally bogus in most cases. Heads up City of Vancouver - who's in control here????

  • by Maxy 8/16/2015 3:08:08 AM

    Does CHMC's Report deliberately left Saskatoon out of the prediction or was it an honest omission. It is hard to believe that property "hurricane" predicted for Winnipeg and Regina did not include Saskatoon as edging towards risky market classification. Going by the rate at which new buildings were and still are popping up on all vacant city surroundings, it sounds like wishful thinking to believe that Saskatoon is not experiencing overbuilding. Builders in the City has started enticing buyers with big rebates ranging from cash discounts to appliance vouchers. My take is that Saskatoon is also experincing overbuilding. A drive around the City will cause Eternal Optmists to think again. One does not need a degree in Economics to read the signs. I will love to be wrong on this.

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