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Canada Mortgage Insurer Warns of Overheating Housing Markets

Canada Mortgage and Housing Corp. said there is “strong overall evidence of problematic conditions” in Toronto, Canada’s largest city, as well as in the smaller cities of Winnipeg, Saskatoon and Regina.


 

Canada Mortgage Insurer Warns of Overheating Housing Markets

Signs of ‘problematic conditions’ in Toronto as well as smaller cities

The housing agency’s warning reflected the strong price growth seen in Toronto and to a lesser extent, Vancouver. NLARGE
The housing agency’s warning reflected the strong price growth seen in Toronto and to a lesser extent, Vancouver.
Photo: Reuters

Canada’s dominant mortgage insurer issued its strongest warning to date about the risk of overheating in housing markets across the country, saying property is overvalued in 11 of 15 major Canadian centers and there are signs of overbuilding in several cities.

Canada Mortgage and Housing Corp. said there is “strong overall evidence of problematic conditions” in Toronto, Canada’s largest city, as well as in the smaller cities of Winnipeg, Saskatoon and Regina.

Evidence of overvaluation and overbuilding has increased in several cities to the point where home prices “are not fully supported by economic and demographic factors,” it warned.

Earlier this week, CMHC said it expected housing markets across Canada to moderate and price growth to slow over the next two years. It forecast an average home price of around 437,700 Canadian dollars (US$332,220) this year, rising to C$443,300 in 2016 and C$449,600 in 2017.

In a conference call with reporters, Bob Dugan, CMHC’s chief economist, said the housing agency’s shift in tone reflected the strong price growth seen in Toronto and to a lesser extent, Vancouver.

“The main thing that’s different is that we’re detecting more overvaluation than the previous report,” said Mr. Dugan.

The CMHC warning comes as Canada’s economy is struggling amid lower prices for a swath of commodities, including crude oil, one of the country’s main exports.

Canadian home prices have risen to record levels in recent years due to record-low interest rates, spurring some economists to predict a sharp correction.

Others have forecast a more moderate decline.

Bank of Canada Governor Stephen Poloz estimated in April the Canadian housing market is overvalued by 10% to 30% largely due to an extended period of low interest rates. The central bank’s latest Monetary Policy Report said lower mortgage rates are contributing to strong growth in mortgage credit, especially in British Columbia and Ontario.

Mr. Dugan agreed with the Bank of Canada’s assessment of a “moderate amount of overvaluation,” but declined to provide a range on how overvalued the market may be.

“What we’ve done is design this model as an early warning indicator,” he said.

The CMHC said a concern for Toronto centers around the elevated number of condominium units under construction.

It said it’s also seeing moderate signs of problematic conditions in Montreal and Ottawa. Those are related to overvaluation and heightened concerns about overbuilding.

In Vancouver, Canada’s second-biggest market, CMHC said there’s little evidence of any major issues aside from some early signs of overvaluation. Overbuilding isn’t a concern in that market, it noted.

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