National home price growth remains inflated: CMHC

Friday, January 27, 2017

Strong evidence of problematic housing market conditions on a national scale have been detected for the second quarter due to overvaluation and price acceleration in housing markets across the country, according to Canada Mortgage and Housing Corporation (CMHC). This is largely due to market conditions in Vancouver and Toronto where strong price growth has been spreading to neighbouring regions such as Victoria and Hamilton.

“We continue to detect strong evidence of problematic conditions in Canada,” said Bob Dugan, chief economist at CMHC, in a press release. “Price acceleration in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation as it is outpacing what economic fundamentals like migration, employment and income can support. For this reason, home buyers should ensure that their purchases are aligned with their needs as well as the long-term market outlook.”

According to CMHC’s latest Housing Market Assessment (HMA), national home prices grew by seven per cent year-over-year at the end of the third quarter of 2016 after adjusting for inflation. However, Ontario’s impact on the growth was so high that if it were removed from the calculation, home prices would have remained flat through to the third quarter.

The HMA also found that overvaluation and overbuilding remain the most widespread problematic conditions impacting the housing market, affecting the 15 urban centres covered by the HMA. Of these 15 regions, overvaluation and overbuilding were detected in eight.

Evidence of problematic conditions has increased in Victoria since the last quarterly HMA due to moderate evidence of price acceleration and overvaluation. Meanwhile, in Calgary, evidence of problematic conditions has decreased since the previous report as some housing markets in oil-dependent urban centres are now rebalancing.

“As Calgary home prices have become more in-line with economic and demographic fundamentals, our overall assessment posted an improvement from strong to moderate evidence of problematic conditions,” said Richard Cho, CMHC market analyst in Calgary. “However, overbuilding is still a concern as Calgary’s rental apartment vacancy rate remains at an elevated level.”

Elsewhere, strong evidence of problematic conditions continues to impact housing markets in Vancouver, Toronto, Regina, Saskatoon and Hamilton. In Ottawa and Atlantic Canada, however, evidence of problematic conditions remains weak.

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