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Canada’s housing market is experiencing some overvaluation, but not enough to worry yet, Canada Mortgage and Housing Corp. said Monday.

CMHC’s House Price Analysis and Assessment framework (HPAA) shows that “a modest amount of overvaluation” exists at the national level, most evident in Montreal and Quebec City. Toronto, Calgary and Halifax are also at modest risk.

HPAA is a tool the crown corporation uses to gauge the housing market. The framework takes into account four factors: overheating of demand in the market, acceleration in prices, overvaluation in prices, and overbuilding.

While the framework didn’t detect overheating, price acceleration or overbuilding nationally, CMHC’s chief economist Bob Dugan says there’s a cautionary note with respect to overbuilding in Toronto and Montreal.

“The number of units under construction is elevated in these centres. This could develop into overbuilding if these units are completed but not sold,” he said. “To mitigate this risk, builders will need to hit the appropriate balance in channeling new demand between units that are currently under construction but not sold and units that are in the planning stage.”

CMHC’s admits some important pieces of information are missing from its assessment, and has created a working group to deal with that problem (and intends to make the framework publicly available at some point).

“CMHC is committed to expanding the availability of information about Canada’s housing markets. This knowledge will ultimately contribute to a stronger housing finance system,” said Evan Siddall, the corporation’s president and CEO.

Here’s a look at some of the markets across the country that CMHC analyzed:

TORONTO – Moderate Risk

  • Overvaluation comes from steady price growth that hasn’t been matched by growth in personal income.
  • The level of completed and unabsorbed units and the rental vacancy rate are both below their respective historical averages.
  • The level of units under construction relative to population is near historical peaks — inventories need to be managed.

MONTREAL – Moderate Risk

  • Overvaluation reflects slower growth in the pool of first-time home buyers since 2012 – impacting demand – combined with house price growth that has generally exceeded growth in personal income since 2004.
  • The level of completed and unabsorbed units is close to its average but the level of units under construction relative to population is near a historical peak. Inventories need to be managed.

QUEBEC CITY – Moderate Risk

  • Overvaluation reflects slower growth in the pool of first-time home buyers since 2012, impacting demand, combined with house price growth that has generally exceeded growth in personal income since the early 2000s.

VANCOUVER – Low Risk

  • The level of home prices in Vancouver is supported by local growth in personal disposable income and long-term population growth.

CALGARY – Low Risk

  • Overvaluation in Calgary reflects the combination of strong growth in house prices and modest gains in personal income.


Follow Kat Sieniuc on Twitter: @katsieniuc

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