CMHC warns of overvalued housing market

The Canada Mortgage and Housing Corporation is sounding the alarm over several of Canada’s housing markets. There are troubling signs beyond the much talked about Toronto and Vancouver scenes.

Bob Dugan is the Cheif Economist for the CMHC, the federal government’s housing authority. On the website the 70 year-old CMHC’s purpose is described as:  contributing “to the stability of the housing market and financial system, provide support for Canadians in housing need, and offer objective housing research and advice to Canadian governments, consumers and the housing industry. Prudent risk management, strong corporate governance and transparency are cornerstones of our operations.”

The CMHC issued their third-quarter market assessment past week, with findings that point to concern in more markets. Dugan says it’s a story of two different markets. “In some markets, Toronto and Vancouver, the overvaluation is because of very strong price growth, in these other markets where we detect overvaluation it’s more the economic and demographic fundamentals that are showing some weakness.”

“The condominium market has become a very important source in the supply of new rental housing”

Calgary, Edmonton, Regina and Saskatoon are four places that have been hit with the drop in oil prices and as a result the house prices are now overvalued as people are no longer moving into these centres, and those who’ve been laid off as a result of the oil bust, try to sell their properties.

Dugan says the condominuim boom that’s taken place in so many Canadian cities has provided rental opportunities for many people. “The condominium market has become a very important source in the supply of new rental housing so there’s been much fewer completions in recent years of purpose-built rental and increasingly new rental stock is coming from people who buy condominiums and rent them out to people.”

The CMHC surveys condo corporations to assess tese factors. They ask how many units are foreign-owned, and this is where challenges are becoming evident in places like Vancouver where it’s becoming obvious that people are buying with little investment in the Canadian economy.

A recent move in the Vancouver market of the imposition of a 15 per cent tax on foreign buyers is seen as a band aid solution to what has become a very skewed market. The tax goes into effect on Tuesd ay August 2nd, so there is bound to be a lot of around-the-clock real estate agents, hard at work trying to satisfy clients hoping to avoid the hefty increase in the cost of a home.