CMHC reveals overvaluation risk

by Olivia D'Orazio30 Apr 2015

The assessment, which considers risks associated with supply and demand, overbuilding, overvaluation and acceleration in prices, also pointed to overbuilding in the condo market in Toronto and Montreal as a reason for the moderate risk assessment in those two cities.
“Inventory management is necessary to make sure that these condominium units under construction do not remain unsold upon completion,” the report stated.
In Toronto, too, the CMHC said price growth that has exceeded growth in personal disposable income is also an issue, while overvaluation concerns in Montreal reflect slower growth in demand from first-time buyers.
Surprisingly, the national housing authority reported Calgary being at a low overall risk, despite some fears of overvaluation.
“The economy is being impacted by lower oil prices and slower inflows of migrants that will likely contribute to an expected slowdown in the rate of price growth in 2015,” the report stated. “There is also the potential for downward pressure in house prices given the decrease in MLS sales and the decrease in the sales-to-new listings ratio to levels consistent with buyer’s market conditions, which could alleviate the risk of overvaluation.”
Overall, the national market remains at a low risk, mainly because price growth remains just “slightly higher” than income and population growth. 
“Overheating (and) acceleration in house prices and overbuilding are not a concern at this time,” the CMHC said.

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