CMHC announces Toronto market at risk due to overvaluation and price acceleration
By Lucas on Aug 13, 2015
The Canada Mortgage and Housing Corporation (CMHC) released its quarterly House Price analysis and Assessment (HPAA) framework, announcing that housing markets in Toronto, along with Winnipeg and Regina are at high risk of correction.
“Nationally, CMHC continues to detect a modest risk of overvaluation. However, our overall assessment of the risk of problematic conditions varies from centre to centre due to regional differences in housing markets,” says Bob Dugan, CMHC’s Chief Economist. “Imbalances in local housing markets could be resolved with further moderation in house prices or improving economic conditions. In the case of Toronto, strong price acceleration in 2015 reflects a larger share of sales of pricier homes. The rise in house prices have not been matched by growth in personal disposable income, giving rise to a modest risk of overvaluation.”
For Toronto, the combination of price acceleration and overvaluation is what puts the market at risk, both of which are subject to “speculative activity.” This means that it’s possible that too many people believe that homes in Toronto are worth more than they might be. But, Toronto is Canada’s largest city and it’s difficult to nail down how quickly prices should rise with the amount of people looking to call the city home. No individual can control these factors.
The only thing that can be controlled is the potential to overbuild. According to CMHC, condo units under construction are nearing historical peaks in Toronto, as well as in Ottawa and Montreal. This one falls on the builders and developers. They need to manage their inventory in an intelligent and strategic manner to ensure these condos aren’t completed with a bunch of unsold units.
CMHC’s first quarter HPAA report of 2015 said that Toronto was at moderate risk due to overvaluation and risk of overbuilding. It seems that the market hasn’t made any improvements over the last few months, in the eyes of the CMHC, but we believe that the leaders of our industry will help guide Toronto’s market to a soft landing!
