Canada housing agency sees overvaluation in most cities

Thu Oct 29, 2015 12:29pm EDT
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TORONTO Oct 29 (Reuters) - Canada's housing market is overvalued in most major cities, with price acceleration not supported by economic and demographic fundamentals in Toronto, the largest market, the federal housing agency said on Thursday.

In a report that highlights the nation's uneven real estate market, The Canada Mortgage and Housing Corp said there is strong evidence of overvaluation in Toronto, Montreal and Quebec City, and moderate risk in most other cities, while overbuilding is most problematic in Winnipeg, Saskatoon, Regina, and Moncton.

When four factors were considered - overheating, price acceleration, overvaluation and overbuilding - Toronto, Winnipeg, Regina and Saskatoon showed the strongest risk of problematic conditions, the report concluded.

"The most prevalent issue detected in 11 of the 15 centres covered by the HMA is overvaluation," Bob Dugan, CMHC's chief economist, said in the agency's quarterly Housing Market Assessment (HMA).

"The continued rise in house prices (in Toronto) has not been matched by growth in economic and demographic fundamentals giving rise to strong evidence of overvaluation," the report noted.

Canada's housing market has been in a prolonged boom since 2009 and economists have repeatedly warned that the sector is at risk of a correction, though they disagree over whether the market will manage a soft-landing or will crash.

While slow economic growth and a drop in oil prices have cooled some markets, low interest rates have continued to support demand, particularly in Toronto and Vancouver, the nation's two largest markets.

The report, however, said there was little evidence of problematic conditions in Vancouver or Victoria. (Reporting by Andrea Hopkins; Editing by Marguerita Choy)