Canada’s housing market overheated, overvalued and at risk of a

Canada’s housing agency has warned that the country’s real estate market is overheated, overvalued and at at risk of a downturn, as home prices continue to climb in most of Ontario, Montreal and Atlantic Canada.

In its latest housing market assessment released Tuesday, Canada Mortgage and Housing Corp. identified excessive home price acceleration as a problem and issued its highest risk rating for the country.

“Exceptionally strong demand and home price appreciation over the course of the pandemic may have contributed to irrational expectations of continued price growth and, in turn, more buyers entering the market than was warranted,” said the report.

This is the second time CMHC has issued the warning for the entire country. The first was during the 2016-2017 real estate frenzy in Toronto and Vancouver when prices rose at a record pace.

The current real estate boom has spread into smaller cities and suburbs, with buyers taking advantage of low mortgage rates to purchase bigger properties.

Now six of the 15 census metropolitan areas (CMAs) assessed by CMHC are in high-risk zone. That is up from five in the agency’s previous report issued in March.

Montreal is the latest addition to the highly vulnerable list that includes Hamilton, Toronto, Ottawa, Halifax and Moncton.

CMHC analyzes each CMA for evidence of overheating, price acceleration, overvaluation and excess inventories. A CMA is a city with a population of at least 100,000, of which 50,000 live in the core.

CMHC said home prices in Montreal have “accelerated to a level not consistent with housing market fundamentals.”

The typical home price in Montreal has climbed 10 per cent to $499,000 in six months on a seasonally adjusted basis, according to the Canadian Real Estate Association’s home price index that calibrates for expensive transactions. The typical single family home there has jumped 12 per cent to $568,100 over the same time period

Inflation is higher in smaller markets such as Bancroft in Ontario, where the price index is up 32 per cent over six months. In B.C., the Okanagan Valley and Chilliwack region are up 18 per cent and 16 per cent, respectively.

In the more expensive parts of B.C., the typical price of a single family home has jumped by at least $100,000 in six months. That includes Vancouver Island, Victoria, the lower mainland, Vancouver and the Fraser Valley, according to CREA’s seasonally adjusted data.

However, CMHC said Victoria only had a moderate level of vulnerability overall and Vancouver had a low level of vulnerability.

Overall, steep price increases across most of Canada have worsened affordability. The federal Liberal Party has outlined plans to help younger Canadians by real estate. One of the proposals to make home buying easier is to slash CMHC’s mortgage insurance rates by 25 per cent. It is unknown whether CMHC supports this plan.

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