January 24, 2017 / 1:53 PM / in 8 months

Hot Toronto housing prices spill over to nearby markets: government

Construction workers chat on a condominium building site in Toronto, Ontario, Canada October 3, 2016. REUTERS/Chris Helgren

OTTAWA (Reuters) - Housing prices in Canada’s largest city, Toronto, have increased disproportionately and are spilling over into nearby communities, the federal housing agency said on Tuesday.

The Canada Mortgage and Housing Corp (CMHC) said the spillover of rising home prices has affected nearby cities within commuting distance of Toronto. It noted the average price in the Greater Toronto Area was up 18 percent in the third quarter of 2016 from the same quarter in 2015.

While most Canadian housing markets have cooled after a long boom, Toronto has continued to boil, sparking concerns about a bubble. The government tightened mortgage lending rules again late in 2016 in a bid to lower the risk of consumers taking on too much debt to get into the market.

The CMHC has said there is strong evidence of overvaluation in Toronto, with the growth in house prices persistently outpacing economic and demographic fundamentals.

The report said the spillover effect of high prices is greatest in communities closer to Toronto, and that the impact of a negative or positive shock would affect prices in the spillover communities more dramatically than in Toronto itself.

It said, for example, that “an unexpected 10 percent contraction in GTA (Greater Toronto Area) prices could lead Hamilton prices to decline by 14 percent within one year,” the report said.

Reporting by Andrea Hopkins; Editing by Jeffrey Benkoe

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