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Canada's housing market 'highly vulnerable,' CMHC warns

Canadian housing markets are highly vulnerable and at risk of being hit by overbuilding, overvaluation and too-quick price appreciation, the national housing agency says.

Overvaluation detected in some markets, overbuilding in others

House prices have increased nationally by about three per cent in the past 12 months, and the CMHC isn't forecasting gains much bigger than that for the next two years. (Darren Calabrese/Canadian Press)

Canadian housing markets are highly vulnerable and at risk of being hit by overbuilding, overvaluation and too-quick price appreciation, the national housing agency said Thursday.

The Canada Mortgage and Housing Corporation singled out housing markets in Toronto, Hamilton, Vancouver, Victoria and Saskatoon for being "highly vulnerable" for a combination of factors.

Four times a year, the national housing agency looks at housing in the 15 largest markets in the country, and judges them on four criteria:

  • Overheating: Sales significantly outpace new listings.
  • Price acceleration: Fast-rising prices are often a sign of speculative activity.
  • Overvaluation: Prices are higher than incomes, mortgage rates and other fundamentals can justify.
  • Overbuilding: The rental market vacancy rate or the level of unsold new buildings is higher than normal.

In each criteria, the CMHC gives the market a colour-coded grade: green means there's little evidence of that problem, yellow is for when there's moderate evidence, and red means strong evidence of that category.

The five cities above received red warnings overall, and are collectively large enough that the national housing market also got a red flag.

In Toronto, "high house prices could not be explained by fundamental economic drivers such as income and population growth," the CMHC said. 

Hamilton has been deemed to be highly vulnerable for five quarters in a row.

"House prices continued to grow more quickly than levels supported by economic and demographic fundamentals," the CMHC said.

In Vancouver, the city scored a red or yellow on every category except overbuilding. The same can be said of nearby Victoria. While Saskatoon showed moderate signs of overvaluation, the CMHC said the city's biggest problem is overbuilding, where the city got a red flag.

Other cities, including Calgary, Edmonton, Regina and St. John's, are also showing evidence of overbuilding, the CMHC says.

The CMHC singled out five cities with overall red flags. The national housing market as a whole also received a red flag. (CMHC)

According to the latest data from the Canadian Real Estate Association, which represents realtors across the country, the average Canadian home sold last month was worth $487,000, a figure that has risen by three per cent in the past year.

In its report Thursday, the CMHC says it expects that figure to inch higher for the next two years.

"The average should lie between $493,900 and $511,300 in 2017, and between $499,400 and $524, 500 by 2019," the CMHC said in a release.