Is Toronto’s Housing Market at Risk of Overbuilding?

The Canada Mortgage and Housing Corporation (CMHC) released its updated results of the House Price Analysis and Framework, announcing that Toronto’s housing market is at moderate risk due to overvaluation and risk of overbuilding.

The analysis and framework was designed to detect the presence of problematic conditions in Canadian housing markets, mainly the 12 most active (Vancouver, Calgary, Edmonton, Saskatoon, Regina, Winnipeg, Toronto, Ottawa, Montreal, Quebec, Halifax, and St. John's).

“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. Likewise, housing market risk factors such as overheating, acceleration in house prices and overbuilding also vary by CMA” says Bob Dugan, CMHC’s Chief Economist.

The four main risk factors used to determine a housing market’s risk level are as follows:

• Overheating demand, which is when the demand for housing outpaces the supply
• Acceleration in growth rate of prices
• Overvaluation
• Overbuilding, which is when supply outpaces demand

Toronto’s risk level is moderate due to overvaluation and potential overbuilding. Housing prices are increasing quicker than the average levels of personal disposable income. Also, the levels of completed and unsold units, as well as rental vacancy levels are lower than average. While this is the case, the number of condo units under construction is nearing “historical peaks.”

On a national level, Canada’s housing markets are not at risk. The CMHC has noted that there is a modest overvaluation in Canada’s housing market, but it’s not great enough to generate much of a concern.

The only two housing markets that are considered high risk by CMHC’s findings are Regina and Winnipeg. In Regina, there are strong signs of price acceleration, overvaluation, and overbuilding, specifically in the condo market. As for Winnipeg, overvaluation and overbuilding could potentially be an issue in the near future.