By Alexandra Posadzki, THE CANADIAN PRESS
TORONTO: Canada Mortgage and Housing Corporation has added Toronto to its list of troubled housing markets, saying that rapid price growth and overvalued home prices put the country’s biggest real estate market at high risk of a correction.
Toronto joins Regina and Winnipeg, which the mortgage insurer placed in the high risk category back in April. At the time, Toronto was only labelled as facing a moderate level of risk due to overvaluation.
Dana Senagama, CMHC’s market analyst for Toronto, says it’s the detached housing market _ and not the much-discussed condo segment _ that faces a higher degree of risk.
“Contrary to a lot of the chatter surrounding the condo market and unrealistic price growth happening in that segment … we’re really seeing the rapid gains are being felt in the low-rise category, particularly in the single detached homes,” said Senagama.
Prices of detached homes have been growing at roughly double the pace of condo units for the past four or five quarters, Senagama said.
In Regina, price acceleration, overbuilding in the condo market and overvalued home prices are responsible for the heightened housing market risk, according to the report, although CMHC notes that price growth is beginning to wane.
In Winnipeg, overvalued home prices and overbuilding have been flagged as concerns.
Meanwhile, Vancouver _ one of the country’s priciest real estate markets _ has been deemed low risk, even as home prices continue to soar. The benchmark price of a detached home in metropolitan Vancouver hit $1.1 million in July, up 16.2 per cent from a year ago, the Real Estate Board of Greater Vancouver said last week.
“I think a lot of the reason for concern with respect to Vancouver is the tendency to equate high price levels with overvaluation,” said Bob Dugan, CMHC’s chief economist.
“High prices are only part of the story.”
Dugan said overvaluation measures take into account whether prices are supported by underlying factors such as incomes, population growth and, in the case of Vancouver, land constraints.
“You have the mountains on one side, the ocean on the other and you have the Agricultural Land Reserve,” Dugan said, referring to a parcel of land set aside for farming where housing development is prohibited.
“There isn’t a lot of land. There’s a lot of constraints there that put upward pressure on prices.”
On a national level, CMHC says there is a modest risk that home prices are overvalued.
CMHC’s house price analysis and assessment aims to identify potential risks in Canadian real estate by evaluating economic, financial and demographic factors.
The agency uses four factors to identify the level of risk present in regional housing markets: overheating of demand, accelerating price growth, overvaluation of prices and overbuilding.
© 2015 The Canadian Press