Overbuilding

Overvaluation to impact markets in 2016: CMHC

Wednesday, January 27, 2016

The latest Housing Market Assessment (HMA) from Canada Mortgage and Housing Corporation (CMHC) reports moderate evidence of overvaluation in housing markets across Canada during the first quarter of 2016. When broken down across the 15 major regions covered by the HMA, overvaluation and overbuilding are the most common problematic conditions that were found, with overvaluation present in eight regions and overbuilding detected in seven.

“The evidence of overbuilding has increased since the previous assessment in Calgary, Saskatoon, Regina and Ottawa due to either higher vacancy rates, high inventory of new and unsold units or a combination of both,” said Bob Dugan, CMHC chief economist, in a press release. “As more centres are now showing problematic overbuilding conditions, inventory management is becoming more important.”

The HMA detected strong evidence of problematic conditions in Calgary, Saskatoon and Regina due to the detection of both overvaluation and overbuilding. Low oil prices are affecting Alberta and Saskatchewan, causing a negative impact for those regions’ migration, employment and income levels, which are affecting housing markets.

In Toronto, strong evidence was found of a combination of price acceleration and overvaluation. Also present was the potential risk of overbuilding due to the large number of condominium units under construction, which is being monitored by CMHC. Inventory management is a necessity to ensure these condo units are sold upon completion.

In Winnipeg, problematic conditions have declined from strong to moderate due to evidence of overvaluation being reduced following improved economic and demographic fundamentals.

The HMA analyzed 15 Census Metropolitan Areas (CMAs) for problematic housing market conditions – Victoria, Vancouver, Edmonton, Calgary, Saskatoon, Regina, Winnipeg, Hamilton, Toronto, Ottawa, Montreal, Quebec, Moncton, Halifax and St. John’s. The HMA took into account the economic, financial and demographic drivers of housing markets to form a complete picture of overall housing market conditions. Additional information can be found at http://www.cmhc.ca/HMA.

The next Housing Market Assessment is scheduled for release on April 27, 2016.

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