Vancouver and Toronto Show Strong Home Overvaluation, CMHC Says

  • West coast city's reading raised to `strong' from `moderate'
  • Nationwide overvaluation and overbuilding is `prevalent'

Canada’s federal housing agency raised its warning level on Vancouver real estate, saying prices of single-detached homes are inconsistent with economic fundamentals.

The city’s property market is showing “strong” evidence of overvaluation, Canada Mortgage & Housing Corp. said in its second-quarter Housing Market Assessment report Wednesday. That’s up from “moderate” in the first quarter.

Ottawa-based CMHC tracks 15 Canadian cities for signs of stress including price acceleration, overvaluation and overbuilding. Vancouver and Saskatoon join Toronto and Quebec City with the highest levels of overvaluation, the agency said.

Canada’s home sales and prices continue to climb, fueled by low mortgage rates and record consumer debt burdens, even after several rounds of warnings and tougher regulations from policy makers. Finance Minister Bill Morneau moved in December to tighten down payment rules for insured mortgages, specifically citing pockets of risk in Toronto and Vancouver.

CMHC said Vancouver is now showing “moderate” evidence of overall problematic conditions, an increase from “weak” in the first quarter. Calgary, Saskatoon, Regina and Toronto show the strongest evidence of problematic conditions.

Overvaluation and overbuilding “remain prevalent” in Canada, CMHC reported. There is overvaluation in nine of the 15 cities tracked in the quarterly report, and overbuilding in seven markets. The overvaluation assessment is created by comparing four price indexes against “fundamental” drivers of the market such as income and population growth.

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