Canada is facing problematic housing market conditions nationally for the second consecutive quarter due to overvaluation and price acceleration, according to a new report.
The main problem location are Vancouver and Toronto where strong price growth has been spreading to neighbouring centres such as Hamilton and Victoria, says the report from the Canada Mortgage and Housing Corporation (CMHC).
House prices in Canada increased by 7% year on year at the end of the third quarter of 2016 but removing Ontario from the calculation would have seen house prices remain flat through to the third quarter.
The CMHC’s quarterly Housing Market Assessment (HMA) is regarded as an early warning system, alerting the industry to areas of concern developing in housing markets so that they may take action in a way that promotes market stability.
Overvaluation and overbuilding remain the most prevalent problematic conditions observed across the 15 areas covered by the HMA and evidence of problematic conditions has increased in Victoria since the previous report due to moderate evidence of price acceleration and overvaluation.
Evidence of problematic conditions has decreased in Calgary as some housing markets in oil dependent centres are now rebalancing but strong evidence of problematic conditions continue to be detected in Vancouver, Toronto, Regina, Saskatoon and Hamilton while evidence of problematic conditions in Ottawa and Atlantic Canada remains weak.
CMHC defines evidence of problematic conditions as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration, or combinations depart significantly from historical averages.
‘We continue to detect strong evidence of problematic conditions in Canada. Price acceleration in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation as it is outpacing what economic fundamentals like migration, employment and income can support. For this reason, home buyers should ensure that their purchases are aligned with their needs as well as the long term market outlook,’ said Bob Dugan, CMHC chief economist.
Meanwhile further CMHC data shows that new home construction started the year well with 199,834 units started in January, up from 197,881 in December. The data shows that Ontario starts continue to drive the national trend upwards but construction has slowed in British Columbia since last July when it reached a near record high. The report says that this slowdown can be partly attributed to builders focusing on projects still underway.