Toronto housing market still at risk of overvaluation
By Lucas on Oct 29, 2015
The Canada Mortgage and Housing Corporation (CMHC) released its latest Housing Market Assessment (HMA) report for Canada and 15 census metropolitan areas.
The HMA finds “strong overall evidence of problematic conditions” in Toronto, as well as Winnipeg, Saskatoon, and Regina.
“The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation. The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montréal, Edmonton, and Saskatoon as price levels are not fully supported by economic and demographic factors,” says Bob Dugan, CMHC’s Chief Economist. “Problematic overvaluation conditions in local housing markets could be resolved by moderation in house prices and/or improving economic conditions.
In Toronto’s case, price acceleration and overvaluation are the largest issues, and CMHC notes that they are watching out for potential overbuilding. Condo unit construction has seen a big jump this year, but overbuilding shouldn’t become an issue if developers can properly manage their inventories.
Condo construction in Toronto
Price acceleration can be influenced by “speculative activity,” but in the case of Toronto, the issue is clearly that supply can’t keep up with demand (in the new low-rise market). Just recently when the Building Industry and Land Development Association (BILD) released its September 2015 new home market figures from RealNet Canada, the average price of a new low-rise home in the GTA hit a record high of $811,579, while the inventory level remained at just 3 months of supply.
Overvaluation implies that the housing prices aren’t being properly determined by “fundamental drivers” like income, mortgage rates, and population.
The fall season isn’t quite over yet, but it’s starting to look like the traditionally busy season for the GTA’s new home market still didn’t launch enough new units to satisfy the unbearably strong demand.
