CMHC: More Evidence of Overbuilding In Canada

Repeats Story Initially Transmitted at 19:52 GMT Jul 26/15:52 EST Jul 26

--Indicator for Overvaluation Remains Moderate

--Price Acceleration Still Being Detected

--Evidence for Overall Problematic Conditions In Canada Remains Strong

By Yali N'Diaye

     OTTAWA (MNI) - Evidence of problematic conditions in Canada's housing

market remain "strong" overall, Canada Mortgage and Housing Corporation said in

its quarterly Housing Market Assessment Wednesday.

     While evidence of overheating and overbuilding remained "weak", it has

increased, the report showed.

     On the price front, evidence of price growth acceleration and overvaluation

remained "moderate". 

     Growth in the young adult population slowed, CMHC said, while real personal

disposable income declined in all regions except for British Columbia.

     "These two factors provide less support to real house prices, which have

picked up in the first quarter of 2017 after two quarters of decline in 2016,"

the report said. "Along with moderate overvaluation, price acceleration

continues to be detected."

     While the agency did not change its overall assessment of problematic

conditions at the national level, a few more imbalances emerged, including

higher evidence of overbuilding in Quebec, and higher evidence of overheating in

Vancouver.

     With Quebec joining the pack, the indicator of overbuilding is now moderate

in five census metropolitan areas instead of four, including the nation's

capital, Ottawa.  Saskatoon and Regina continued to display strong evidence of

overbuilding.

     Instead, Canada's two largest and tightest markets - Vancouver and Toronto

- continued to register weak evidence of overbuilding in the first quarter, the

only green light for these two areas closely watched by the Bank of Canada.

     Both Vancouver and Toronto continued to experience "strong" evidence of

problematic conditions, notably when it comes to prices.

     Imbalances worsened in Vancouver, where evidence of overheating is now

moderate versus weak in the April report. Signs of overheating were already

moderate in Toronto.

     "Metro Vancouver's housing market continues to show strong evidence of

problematic conditions due to moderate evidence of price acceleration and strong

evidence of overvaluation," the report said. "Evidence of overheating has

increased from weak to moderate, although conditions varied by market segment."

     In Toronto, "five consecutive quarters of the sales-to-new listings ratio

being above the threshold of 70% has led to the continued detection of moderate

evidence of overheating."

     Fitch Ratings estimates that the Canadian housing market is 26% overvalued,

compared to 25% a year ago.

     While the Bank of Canada sees the chance of a house price correction as

low, JPMorgan, in a research note, put the probability of a 20% price correction

over the next five years at 20%. 

--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com