It's important to note that despite this proclamation – part of a report released Tuesday – the rating agency does not expect prices to fall, due to a number of positive factors, including limited risk in outstanding mortgage products.
“Nonetheless, elevated price risk poses concerns, especially with a significant amount of inventory poised to hit the market,” stated the report.
“As a large number of units come on line, prices may soften, which could reverberate throughout the Canadian economy.
Lower prices would reduce the incentives to build further units, which could hit employment in the construction sector that has been buoyed by continuing price growth. This in turn could lead to more significant downside exposure.”
Since 2009, home prices in Ontario have grown at an annualized rate of 7.6 per cent, according to the report. It also pointed out that more than 80,000 new multi-family units are under construction in the province – a record high and nearly 50 per cent than four years ago.
“Amid this unprecedented increase in large developments, construction timelines are being extended, with completions lagging behind housing starts,” continued the report.
“With price levels relatively flat over the last six months, the significant boost to supply implied by this construction overhang could present a problem for continued price growth, with the market potentially becoming oversaturated.”
The Fitch Ratings report argues the province’s home prices are approximately 25 per cent overvalued, following an analysis between home prices and fundamental economic factors such as income, unemployment and mortgage rates.