Strong evidence of problematic conditions persists in real estate market: CMHC

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CMHC has also found evidence of price acceleration in Toronto and Vancouver spreading to a number of other areas that aren’t covered by the housing market assessment, such as Barrie, Ont., Oshawa, Ont., and Kelowna, B.C.

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The housing agency says the most prevalent issues it has observed in the 15 markets monitored by the assessment are overbuilding and overvaluation, which occurs when house prices outpace economic fundamentals such as income and population growth.

Overbuilding is identified when the rental market vacancy rate or the number of newly built homes sitting on the market unsold become elevated.

CMHC first raised its overall risk rating for the national housing market to strong from moderate last October, citing growing evidence of overvaluation.

Since October’s report, CMHC has upgraded the risk rating for Victoria to strong from weak, as moderate evidence of overvaluation in that market has surfaced.

Meanwhile, Calgary’s risk rating was downgraded to moderate from strong, as evidence of overvaluation in that market lessened.

In total, CMHC says it has found strong evidence of problematic conditions in six of the 15 markets included in the report: Vancouver, Victoria, Saskatoon, Regina, Toronto and Hamilton.

Edmonton, Calgary, Winnipeg, Montreal and Quebec City show moderate evidence of such conditions, the agency said.

CMHC’s housing market assessment is intended to be an early warning system to alert Canadians about problematic conditions developing in the country’s real estate markets.

The report covers the third quarter of 2016, which spans from July 1 to Sept. 30.

Since then, the federal government introduced new rules that require all insured mortgages to undergo a stress test to determine whether borrowers will still able to make mortgage payments if interest rates rise or their income declines.

Previously, such stress tests weren’t required for fixed-rate mortgages longer than five years.

CMHC says it will take some time before the impact of the rule changes is reflected in the housing market assessment.

Follow @alexposadzki on Twitter.

Alexandra Posadzki, The Canadian Press