CMHC warns of property overvaluation

CMHC warns of property overvaluation

Is Canada’s housing market really at-risk?

On January 26th, the CMHC has started raising warning red flags on property overvaluation against the nation’s real estate markets. CMHC’s warnings are due to rising Toronto and Vancouver properties prices. Property developers and market watchers explained that CMHC’s reactions against real estate market trends was not an off-the-cuff decision. Considering the rise in property prices and overvaluations, real estate business remains severely affected in major metropolitan cities.


The central housing agency has been closely watching markets, assigning ratings to over fifteen major metropolitan centers. CMHC pinpointed Victoria as a trending destination where rising prices and high valuations were making conditions difficult for property buyers.


As early as October, CMHC warned of prices heating up in suburban areas surrounding Toronto and Vancouver. As a result, home buyers have started to avoid costly city-based locations. Scouting inexpensive outlying areas such as Barrie, Ontario and Abbotsford, BC is the new norm.


Trends and Statistics

Vancouver, Toronto, Hamilton, Regina and Saskatoon are five major markets where the CMHC warns of exorbitant property values.  Interestingly, in the previous year, prices dipped moderately in Saskatoon. In the same period, prices remained unchanged in Regina. Calgary, located in the oil manufacturing hub of Canada, revived its real estate market with moderate pricing. Calgary’s market revival also signals restored buyer interest in localities associated with oil centers.


Ontario and British Columbia accounted for the bulk of residential property sales.  The two cities net 66% of nationwide sales transactions in 2016.


To tackle Vancouver area housing affordability, a 15% foreign buyers’ tax was introduced in August 2016. The tax came into effect five months after Metro Vancouver prices climbed steeply.


Between June to November, foreign property purchases made up 7% of total residential purchases in Vancouver. Analyses by the CMHC indicate the number of foreign buyers interested in Vancouver remained the highest in BC.  4.2% of purchases in this time frame went to Victoria and its connected suburban areas.  Vancouver’s market remains desirable despite the fact that Victoria doesn’t levy the tax.


Predicting Canada’s real estate future

Market watchers observe Vancouver homeowners sell their homes to foreign buyers, relocating in cheaper areas such as Victoria and Kelowna. Industry researchers continue to study the migration trends of home sellers from Vancouver to Victoria and Southern BC.


Concerned economists at the CMHC and Royal Bank of Canada find the current real estate market troubling. Buyers still continue to find property prices out-of-reach in the Greater Toronto and Vancouver areas. Despite economic growth, property prices continue to move beyond the reach of the average buyer. The steady rise in house prices encourage the migration of buyers to less expensive areas. More often than not, these more affordable cities and towns are far from the buyers’ workplaces.


Some market analysts view Vancouver’s new tax as the cause of sellers’ migrations to Victoria and Toronto. However, before the foreign buyers’ tax, markets outside of the Vancouver area experienced an increase in market demand.


Even as Toronto leads the nation in property price increases, the Federal Government quietly tweaked mortgage lending rules. Lastly, these new rules assess whether buyers are financially capable of handling interest rate hikes.


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A Maryland native and Toronto-area transplant/graduate of the University of Toronto, Christine is a content writer at Loanerr. When not writing articles, she's an avid swimmer, cat lover, violinist in a indie band, and a humble food aficionada.