CMHC sounds the real estate overvaluation alarm

Several major markets are overvalued, and many more are being overbuilt, according to the Canada Mortgage and Housing Agency.

Nine major markets are overvalued and seven are being overbuilt, according to the Crown Corporation’s Q2 Housing Market Assessment.

“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,” Bob Dugan, chief economist, Canada Mortgage and Housing Corporation, said in a release.

The Crown Corporation breaks down its assessment by market, assigning a rating of “strong,” “moderate,” and “weak” evidence of problematic conditions.

Markets with strong evidence of problematic conditions

Toronto:
“Fewer launches of new single detached projects in recent years meant demand is increasingly absorbed by the high end resale market. As a result, inventories of both new and resale single-detached homes have declined contributing to rapid price growth,” CMHC said in its report.

Calgary:
“House prices in Calgary have not been completely supported by economic and demographic fundamentals, leading to a moderate evidence of overvaluation,” CMHC said. “In addition, we detect moderate evidence of overbuilding in Calgary as the vacancy rate rose to an elevated level.”

Markets with moderate evidence of problematic conditions

Vancouver:
“We see strong evidence of overvaluation in Vancouver’s housing market. 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,” Robyn Adamache, principal market analyst (Vancouver), Canada Mortgage and Housing Corporation, said. “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.”

Edmonton:
“New home inventories have been on the rise, while the number of units under construction remains elevated,” CMHC said. “There is a potential for the market to exhibit signs of overbuilding moving forward as inventory is expected to increase further.”

Markets with weak evidence of problematic conditions

Hamilton:
“Price growth for single-detached homes has been stronger than warranted by increases in fundamental factors such as population, employment, and income,” CMHC said.

To read the entire report, click here.