Homes prices in the Greater Toronto Area and across the country has been a hot topic of discussion among real estate market analysts and commentators this year. The opinions have varied, but in general, the outlook is not great…unless you’re looking to sell. Home prices keep escalating to record highs, prompting some to state the market is headed for a crash. And the most recent statistics to come out of the Canadian Mortgage and Housing Corporation reaffirms the idea that the country’s real estate bubble is set to burst.
The CMHC said in its Housing Market Assessment report this past Thursday warns of “problematic housing market conditions” in many of the country’s major housing markets. Toronto is definitely a primary target of concern, but so are about a quarter of the 15 biggest real estate markets in the country.
The CMHC Assessment evaluated the markets based on four criteria:
- Overheated home sales.
- Too many homes being built.
- Prices increasing too quickly.
- High prices.
Using this criteria, the agency singled out four cities for being particularly troubling: Saskatoon, Regina, Winnipeg and Toronto.
But none of the 15 cities mentioned in the report are out of hot water. Overvalued homes were identified as a “moderate” or a “strong” problem in 11 of the 15, that’s up from eight cities the CMHC identified as troublesome in their quarterly report released back in August. Vancouver, Calgary, Edmonton, Ottawa, and Montreal were among the cities listed in the 11.
According to CMHC’s chief economist Bob Dugan said:
“The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation. The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montreal, Edmonton and Saskatoon as price levels are not fully supported by economic and demographic factors.”
Susan Pigg of The Toronto Star notes an interesting omission in the CMHC report. In a report issued in 2014 by Dugan and the CMHC, which was heralded as “an early warning system” aimed at highlighting concerns before they could lead to a market downturn — estimated that Canadian house prices were about 3 to 4% overvalued. That report made a point to not include many figures, including a disclaimer about the complexities of risk models, choosing instead to go with a colour system (red being the worst, and so on). This year’s report had no colour system and excluded the word “risk.”Cities are now assessed to determine if they are “weak” or not.
Garry Marr of The Financial Post went as far as to question whether the situation is really all that dire. What does it mean that the CMHC won’t issue specific estimates of just how much these cities are overvalued? Does it mean the situation is worse than everyone thinks? The CMHC is the Crown corporation responsible for advising the government on housing policy, and since they won’t speculate on the possibility of a crash or exactly how much markets are overvalued, the forecast, atleast on its surface, appears to be dim.