Overvaluation and overbuilding remain prevalent in Canada’s housing markets

Ottawa Sun, May 6, 2016 –

Overvaluation is detected in nine Census Metropolitan Areas (CMAs) and overbuilding in seven, according to the Canada Mortgage and Housing Corporation’s (CMHC) latest Housing Market Assessment (HMA) released on April 27, 2016. Nationally, CMHC detects moderate evidence of overvaluation.

The HMA serves as an early warning system, alerting Canadians to areas of concern developing in our housing markets so that they may take action in a way that promotes market stability.

“While we see weak evidence of problematic conditions overall nationally, we do detect moderate evidence of overvaluation, meaning house prices remain higher than the level personal disposable income, population growth and other fundamentals would support,” said Bob Dugan, CMHC Chief Economist.

Report Highlights

Overvaluation and overbuilding remain the most prevalent problematic conditions observed across the 15 centres covered by the HMA.

Overvaluation is detected in nine centres while overbuilding is detected in seven. The evidence of overvaluation has increased since the previous assessment in Vancouver, Hamilton, and Saskatoon.

“We see strong evidence of overvaluation in Vancouver’s housing market,” said Robyn Adamache,

CMHC Principal Market Analyst for Vancouver. “Single detached home prices are higher than levels supported by economic fundamentals and inventories of new and resale homes are declining while demand remains high. We’re also keeping an eye on overheating and price acceleration which are slowly advancing but evidence of these conditions remains weak. Overall, we see moderate evidence of problematic conditions in Vancouver.”

Strong evidence of problematic conditions overall is seen in Toronto, Calgary, Saskatoon and Regina. In Toronto, this is due to the combination of price acceleration and overvaluation. “Overall, we detect strong evidence of problematic conditions in the Toronto CMA,” said Dana Senagama, Principal Market Analyst for the GTA. “Of particular concern is the evidence of price acceleration and overvaluation. A tight resale market, with demand outpacing supply has led to higher price growth. The growth in house prices has persistently outpaced economic and demographic fundamentals, thus giving rise to strong evidence of overvaluation.”

In Calgary, Saskatoon and Regina, this is due to the combination of overvaluation and overbuilding.

Moderate evidence of problematic conditions overall is seen in Vancouver, Montreal, Edmonton, Ottawa, Winnipeg and Quebec.

“We continue to detect moderate evidence of overbuilding in Ottawa’s housing market,”said Anne-Marie Shaker, CMHC Ottawa Market Analyst. The number of completed and unsold condo apartment units per 10,000 population has been steadily rising throughout 2015, and rose once more in the fourth quarter, pointing to moderate evidence of overbuilding.”

The increase in unsold units has been accompanied by rising vacancy rates in primary and secondary rental markets pointing to softer demand conditions. While the number of condo units under construction declined in the fourth quarter, inventory management is still needed until the high number of completed and unsold units is absorbed by the market. Conditions in the Ottawa market continue to point to weak evidence of overvaluation due to modest price growth despite soft income performance.

CMHC defines evidence of problematic conditions as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration, or combinations thereof depart significantly from historical averages. The complete HMA, including national, regional and CMA insight and analysis, is available at www.cmhc.ca

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers and the housing industry.

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