CMHC Rings Alarm About Housing Prices

par Andrew Rickard | August 18 2015 10:46AM

The Canadian Mortgage and Housing Corporation (CMHC) says there is a high risk that real estate prices in Toronto, Winnipeg, and Regina may be overvalued.

In its most recent House Price Analysis and Assessment Framework, the CMHC raised the alarm about prices in Toronto, Winnipeg, and Regina. "In Toronto, the high overall risk reflects a combination of price acceleration and overvaluation," says the CMHC. "The high level of risk in Winnipeg reflects risks of overvaluation and overbuilding, while in Regina it reflects price acceleration, overvaluation and overbuilding, particularly of condominium apartments."

While the report warns that market conditions are moderately risky in both Montreal and Quebec, where prices may be somewhat overvalued, it has assigned a low overall risk rating to the housing market in Vancouver. Although average home prices in Vancouver are higher than the national average, CMHC says that factors such as high demand and land scarcity support these price levels and it has not detected any signs of overvaluation in the city.

The CMHC also points out that overvaluation is not a necessary condition for a price correction. "An economic shock could exacerbate vulnerabilities on the housing market," concludes the report. "For example, a recession could drive house prices lower whether there is overvaluation or not."