CMHC issues ‘red’ warning for Canada’s housing market
The Canada Mortgage and Housing Corporation (CMHC) issued a “red” warning Wednesday saying there is strong evidence that many Canadian housing markets are overvalued.
“We now see strong evidence of problematic conditions overall nationally,” CMHC chief economist Bob Dugan said in a statement. “This is fuelled by overvaluation — meaning house prices remain higher than the level of personal disposable income, population growth and other fundamentals would support.”
READ MORE: What a CMHC ‘red’ warning mean for you
The CMHC warned in its quarterly Housing Market Assessment that red-hot real estate prices have spread beyond Vancouver and Toronto, which have seen skyrocketing housing prices.
“Price growth remains elevated in Vancouver and continues to strengthen in Victoria, Abbotsford, and Kelowna,” the CMHC said.
However, the agency projected that housing starts, sales and prices should cool beginning in 2017 before stabilizing in 2018.
Four cities were given a red warning:
- Quebec City
Five other cities were given a yellow warning, meaning there is moderate evidence of overvalution:
CMHC CEO Evan Siddall warned last week that the federal housing agency would raise its overall risk rating for the national housing market to “strong” for the first time because affordability concerns that have spread beyond the markets of Toronto and Vancouver.
TD economist Diana Petramala told Global News last week the warning is more of a signal to policy makers than a warning to consumers.
“I think in particular though, CMHC’s research is mostly meant to help drive policy around housing and we’ve already seen the reaction from the federal government on Oct. 3,” she said. “I think that for the most part this is going to be, ‘Yeah we knew this already and something’s been done.’”
Ottawa announced new mortgage rules on Oct. 3, which included the introduction of income-testing for insured mortgages at a higher interest rate.
— With files from Leslie Young and Tania Kohut
© 2016 Global News, a division of Corus Entertainment Inc.