CMHC finds strong evidence of problematic conditions in Toronto’s housing market
By Lucas on Jan 27, 2016
The Canada Mortgage and Housing Corporation (CMHC) released its 2016 Q1 Housing Market Assessment (HMA) report, announcing evidence of overvaluation and overbuilding across 15 major housing markets in Canada, including Toronto's housing market. In eight different major centres, CMHC found evidence of overvaluation, and evidence of overbuilding in seven major centres.
“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,” explains Bob Dugan, CMHC’s Chief Economist. “As more centres are now showing problematic overbuilding conditions, inventory management is becoming more important.”
In Toronto, CMHC has found evidence of price acceleration and overvaluation, as well as a rising risk of overbuilding, stating that overall, there is a strong risk of correction of the housing market. This sounds foreboding, but compared to the previous quarter, not much has changed.
Let’s take a look at what price acceleration, overvaluation, and overbuilding actually mean. According to CMHC, price acceleration is “partially reflective of speculative activity,” meaning people are probably overvaluing the land. Which brings us to overvaluation, which “indicates that house price levels are not fully supported by fundamental drivers such as income, mortgage rates and population.”
Overbuilding is an interesting one, and so far, isn’t actually an issue in Toronto. CMHC is just warning the industry that overbuilding could be a thing if we continue to bring a high number of condo units to market. CMHC seems to believe that supply is outpacing demand in the condo market and it is important for developers to have an inventory management strategy.
What do you think? Is Toronto on the verge of overbuilding? Is the land overvalued?
