Toronto housing still at risk of overvaluation Image

Toronto housing still at risk of overvaluation

By Lucas on Oct 30, 2017

The Canada Mortgage and Housing Corporation (CMHC) released its latest Housing Market Assessment (HMA) and Housing Market Outlook (HMO), declaring that overall Canadian markets are “highly vulnerable” with evidence of overvaluation and price acceleration.

“We continue to see a high degree of vulnerability in Canada’s housing market, fuelled by moderate overvaluation and price acceleration. House price growth continues to outpace economic fundamentals like household income and population growth,” says Bob Dugan, Chief Economist, CMHC.

The most at risk housing markets in Canada are Toronto, Hamilton, Vancouver, Victoria, and Saskatoon. Overbuilding evidence is low on a national scale, but is a concern in Edmonton, Calgary, Saskatoon, and Regina.

In Toronto, there is a moderate risk of overheating and price acceleration, and there’s a high risk of overvaluation. Hamilton has the exact same assessment as Toronto. There was a time when Hamilton was looked at as an affordable alternative to Toronto, but as more buyers and businesses target the city, the prices have skyrocketed.

Toronto house

“In 2018 and into 2019, housing starts are projected to decline while house prices should increase over the forecast horizon, but at a slower rate than in the past four years,” Dugan adds.

In Ontario, sales are also expected to trend lower in addition to housing starts. The rising mortgage carrying costs will put downward pressure on housing demand, but it will also shift even more demand to condo units.

As the Building Industry and Land Development Association (BILD) and the recent 2016 Census data demonstrated, condo development is showing no signs of slowing down in Canada or the Greater Toronto Area (GTA).

In September 2017, 83% of the new home sales in the GTA were condo units and 80% of all new homes sales this year have been in the new condo market. According to Statistics Canada, one in five people in Toronto live in a condo!

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