Housing market still ‘vulnerable’

CMHC HAS CONCERNS EVEN AS OVERVALUATION EASES IN TORONTO

The country’s overall real estate market remains “vulnerable” despite an easing in overvaluation in cities like Toronto and Victoria in the third quarter, according to a report by Canada Mortgage and Housing Corporation.

The federal agency said Thursday that this is the tenth quarter in a row where it has given the national housing market a “vulnerable” assessment.

The findings in the quarterly report are based on a number of factors including the level of imbalances in the housing market related to overbuilding, overvaluation, overheating and price acceleration when compared with historical averages.

CMHC said it changed Toronto and Victoria’s overvaluation ratings from high to moderate when it measured it against factors such as population growth, personal disposable income and interest rates.

Meanwhile, the degree of overall vulnerability remains high in Hamilton, Ont., and also in Vancouver, where the housing market has cooled in recent quarters but property prices remain high compared to these economic fundamentals.

Still, the agency noted that the country’s overall vulnerability rating could be downgraded in future quarters due to signs that overheating and overbuilding remain low in some markets.

“In Toronto, we’ve seen an easing of the pressures of overvaluation because house price growth has moderated and so the level of prices isn’t increasing as quickly but fundamentals are still growing at a strong rate so there has been a narrowing of that gap between actual house prices and fundamentals,” CMHC chief economist Bob Dugan said in a conference call with reporters.

Dugan noted that the agency doesn’t “target” any level of overvaluation in its report.

“Overvaluation doesn’t really have anything to do with affordability,” he said. “In Toronto, you can have prices in line with fundamentals but that doesn’t meant that affordability isn’t a challenge. What it means is that there is a relationship between these fundamentals and prices that can explain the level of prices.”

Last month, the Canadian Real Estate Association reported that national home sales were down 19 per cent in December year over year.