CMHC reveals overvaluation risk

CMHC reveals overvaluation risk

CMHC reveals overvaluation risk Forget Toronto and Vancouver -- CMHC is pointing to two other Canadian cities where properties are significantly overvalued.

In its most recent market update, the Canada Mortgage and Housing Corp. says overvaluation concerns are growing in Regina and Winnipeg because prices have outstripped family incomes and supply is dangerously high because of a condo boom.

In Regina, that increased supply has eroded resale prices. Compounding things is the growth in unsold construction starts, now at a record high. The CMHC contended, however, that builders have already been scaling back on production.

Similarly, in Winnipeg builders in the detached home market have begun to slow in response to increased inventories. Still condo builders are expected to continue on with projects already in the pipelne, the report says.

“Modest overvaluation based on national indicators reflects a variety of price conditions across the country with some centres showing more signs of overvaluation than others,” said Bob Dugan, CMHC’s chief economist. “Likewise, housing market risk factors such as overheating, acceleration in house prices and overbuilding also vary by CMA.”

The assessment, which considers risks associated with supply and demand, overbuilding, overvaluation and acceleration in prices, also pointed to overbuilding in the condo market in Toronto and Montreal as a reason for the moderate risk assessment in those two cities.

“Inventory management is necessary to make sure that these condominium units under construction do not remain unsold upon completion,” the report stated.

In Toronto, too, the CMHC said price growth that has exceeded growth in personal disposable income is also an issue, while overvaluation concerns in Montreal reflect slower growth in demand from first-time buyers.

Surprisingly, the national housing authority reported Calgary being at a low overall risk, despite some fears of overvaluation.

“The economy is being impacted by lower oil prices and slower inflows of migrants that will likely contribute to an expected slowdown in the rate of price growth in 2015,” the report stated. “There is also the potential for downward pressure in house prices given the decrease in MLS sales and the decrease in the sales-to-new listings ratio to levels consistent with buyer’s market conditions, which could alleviate the risk of overvaluation.”

Overall, the national market remains at a low risk, mainly because price growth remains just “slightly higher” than income and population growth.

“Overheating (and) acceleration in house prices and overbuilding are not a concern at this time,” the CMHC said.
  • Joanne Bedard 2015-05-04 10:04:06 AM
    Everyone has been discussing the continuous increase in the housing market. But lets face it is for a period of time if it does happen. When you look back in time there is no way that we will ever pay what our parents paid for their house and the housing market continues to increase and will continue to increase until we stop reproducing and allowing immigrants to come to Canada. Everyone seams to want there own home and can utilize it as collateral for loans, and continues to be a great investment and is still recognized as an asset in people's financial portfolio. Bad new sells news print...focus on the long term not the short term.
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  • Ross Kay 2015-05-07 9:51:49 AM
    Home Prices are tied exclusively to inflation and housing bubbles are a natural outcome of the Canadian real estate selling infrastructure where Mortgage debt is obtained via simple Market Valuation Appraisals.

    100 home are for sale and only one sells. Of course it the best one for the money that was bought. With that home gone the 2nd best home sells but it gets the same price. Over time this happens 38 times meaning after 3 months when the 38th best home sold, it is sold for a least what the very best home sold for 3 months earlier. Of course there were 62 homes that failed to sell and were removed from the market.

    Those failed sellers need money so they get a HELOC which uses the selling price of the very best home 3 months ago as the Market Value Appraisal.

    This is how housing bubbles form in Canada. What is misunderstood is that 99% of the gains seen from 1998 forward are caused by inflation and selling infrastructure fees only. Provincially it is 98.6 and in the GTA it's over 99%.

    This is what happens when the basics of real estate are not understood by those lending money.

    Housing Bubbles are needed to allow the housing stock to grow ( new home sales) other than first time buyer homes. That means 1 million dollar new builds cannot be sold if a housing bubble does not happen.

    Corrections are needed to deflate the bubble to allow it all to start all over again.

    Mortgage Brokers should be encouraging all their clients to mitigate risk exposure from the pending correction, ( and it's been underway folks for 8 months already) by securing the largest HELOC they possibly can. Don't access the funds just be able to do so if needed.

    This is how you make money with non-rental real estate in a risk free manner.
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