Toronto housing market still at risk of overvaluation Image

Toronto housing market still at risk of overvaluation

By Newinhomes on Apr 30, 2018

The Canada Mortgage and Housing Corporation (CMHC) released its quarterly Housing Market Assessment (HMA), announcing that the national market is highly vulnerable for the seventh consecutive quarter.

“Our market assessment continues to show a high degree of vulnerability at the overall national level due to moderate levels of price acceleration and overvaluation existing together,” says Bob Dugan, Chief Economist, CMHC. “Regionally, there’s a fair amount of variation, as we continue to see a high degree of vulnerability in major centres in Ontario and British Columbia while Prairie and Atlantic markets range from moderate to low.”

The high vulnerability is mostly due to strong risk of overvaluation and price acceleration in TorontoHamilton, Vancouver, and Victoria. The high risk warning is based on data as of the end of of December 2017 and market intelligence up to the end of March 2018.

In Toronto, price drops in the detached home market became more pronounced in the fourth quarter of 2017, while condo conditions tightened for strong price gains. With inventory remaining low, there is low evidence of overbuilding, but there is a high risk of overvaluation and moderate risk of price acceleration and overheating.

Toronto housing

In Hamilton, price growth is raising some flags, and there’s a moderate risk of overheating and price acceleration. There was a high risk of overvaluation in January 2018, but it has since dropped to moderate.

“We continue to see a high degree of vulnerability in the Hamilton housing market due to price acceleration and overvaluation,” says Anthony Passarelli, Senior Analyst, Hamilton, CMHC. “It’s important to note, however, that overvaluation is easing as house prices are moving further in line with disposable income, population growth and employment.”

On a national level, overheating and overbuilding are the only conditions that are at low risk. This means that demand is still strong and we need more new homes coming to market!

CMHC definitions of problematic conditions:

Overheating: Sales outpacing listings

Overbuilding: When vacancy rate or unsold inventory increases

Price Acceleration: Partially reflective of speculative activity

Overvaluation: Prices not supported by fundamental drivers, including income, mortgage rates, and population

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