toronto-skyline-storm Photo: Giorgio Galeotti/Flickr

Canada’s national housing agency is once again sounding the alarm for one of Canada’s hottest housing markets.

In its latest Housing Market Assessment published today, the Canada Mortgage and Housing Corporation said there is strong evidence of problematic conditions existing in the Toronto real estate market.

To arrive at its overall assessment, CMHC considers four factors: overheating, or an inadequate inventory of homes to meet demand, price acceleration, price overvaluation, and overbuilding (the opposite of overheating). It then rates the level of evidence of each factor in a city as either weak, moderate or strong before providing an overall assessment.

In Toronto, evidence of home price overvaluation was strong, according to the CMHC, while signs of overheating were weak. Price acceleration, however, was considered moderate. Meanwhile, the agency said it was keeping an eye on the city, as well as Montreal and Ottawa, for any signs of overbuilding, though currently it said evidence of this happening in the Toronto housing market was weak.

“Condominium units under construction are elevated,” said the agency, addressing overbuilding in these cities in a statement. “Inventory management is therefore necessary to make sure that these condominium units under construction do not remain unsold upon completion.”

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Graphic: CMHC

Toronto was one of four cities deemed to be showing strong signs of problematic conditions in an overall assessment based on examining the four factors. The other three were prairie-province cities — Winnipeg, Regina and Saskatoon.

In an August report, CMHC had pegged the risk of a price correction in Winnipeg’s housing market as “high.” Their evaluation for Regina and Toronto was the same, although Saskatoon was considered low in risk.

For Vancouver, another of the country’s blazing housing markets, the CMHC’s outlook is more positive. “There is weak evidence of problematic conditions in Vancouver,” CMHC said, explaining its overall evaluation. There is demand for housing there, but more listings and new units hitting the market have helped ease tension, though due to price gains there is moderate evidence of overvaluation.

One potential problem was more common than any other CMHC observed, said Bob Dugan, CMHC’s chief economist, in a statement. “The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation,” he said.

“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,” he explained.

Despite the concerns outlined across the majority of major Canadian metro areas, only Hamilton was given a rating above “weak” for overheating, which CMHC defines as happening when “demand significantly outpaces supply.” In that respect, Hamilton is showing moderate evidence.

The Housing Market Assessment looked at 15 census metro areas stretching from coast to coast.

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