National home market overheating
Housing agency sees dangerous signs of price acceleration
Canada’s housing agency says there is evidence of increasingly “problematic conditions” in the national home market, prompting it to upgrade its assessment of the country’s troubling signs from weak to moderate.
That’s a reflection of more overheating, overvaluation and price acceleration in the hottest markets in Vancouver and Toronto. But it is also a combination of overvaluation and overbuilding in cities like Calgary, Saskatoon and Regina, said Bob Dugan, senior economist at Canada Mortgage and Housing Corp. (CMHC), which issued its third-quarter report on Wednesday.
Overheating in the market for singlefamily homes has spread to other types of homes and the soaring prices of Vancouver and Toronto are also reaching neighbouring communities, said Dugan.
If it detects more broad-based price acceleration as the Toronto and Vancouver prices spread to other areas, the CMHC assessment could be upgraded from moderate to strong, he said.
The CMHC report suggested that Toronto’s hot market is increasingly spilling over into neighbouring Hamilton, which is showing similar levels of overvaluation on its homes. Overvaluation means prices are higher than would normally be explained by factors such as population, employment and income.
“The sales-to-new-listings ratio was 84 per cent, reaching its highest quarterly level on record and significantly above the 75-per-cent threshold used to identify evidence of overheating,” said CMHC’s Housing Market Assessment report.
In Hamilton, many buyers come from outside the city of 520,000 people, so they don’t add to the listings of properties available for sale there.
There’s no specific data on where those buyers originate, said Abdul Kargbo, Hamilton analyst for CMHC.
“But if we look back to 2013, we do see that Hamilton is attracting some buyers that are priced out of Toronto into Hamilton because Hamilton is relatively affordable,” he said.
The lack of single-family homes in the area is pushing Toronto prices higher.
Home prices climbed 16.8 per cent year over year in June, according to the Toronto Real Estate Board.
“Fewer launches of new single-detached projects in recent years meant demand has been increasingly absorbed by the resale market,” says the report.
That lack of supply and the soaring prices are pushing more buyers into condos. A low vacancy rate in the rental market is also helping absorb unsold units, it said.
That is evidence that provincial intensification polices are driving up home prices in the Toronto area, said the building industry.
“The home-building industry has been consistent in its advocacy to increase housing choice in the GTA marketplace. The industry is building far fewer lowrise homes, especially single family detached homes, today because we are mandated to,” said Michelle Noble of the Building Industry and Land Development Association.
Durham is the hottest market in the Greater Toronto Area. It attracts a lot of first-time buyers because housing prices there are significantly lower than other parts of the region, said CMHC Toronto market analyst Dana Senagama.
“There are supply constraints but the advantage Durham has is that it is about 50 per cent less on average in terms of house pricing,” she said. The CMHC assessment is based on various signals in 15 major Canadian markets. The objective is to identify signs of instability in housing prices.