Our riskiest housing markets and overvaluation concerns
May 04, 2015
Canada Mortgage and Housing Corp. recently released a report identifying Canada’s riskiest housing markets, and in spite of Toronto’s and Vancouver’s sky-high prices, Winnipeg and Regina are the chart toppers when it comes to risk.
According to CMHC, the housing market is considered “overvalued” and at risk when real estate price gains surpass increases in personal disposable income. Overlvaluation is one of the factors considered in CMHC’s risk measure, along with overheating; acceleration in the growth of house prices; and overbuilding.
From a national perspective, CMHC says modest overvaluation is observed due to real estate price gains slightly outpacing personal disposable income, population growth and other factors. However, “Overheating, acceleration in house prices and overbuilding are not a concern at this time.” However this isn't the case from coast to coast.
Here's a closer look at Canada's major housing markets:
Among the low risk markets are Calgary, Edmonton and somewhat surprisingly, Vancouver.
Winnipeg and Regina sat at the opposite end of the spectrum, posing the greatest concerns with strong price growth and modest gains in disposable income creating a high risk of overvaluation.
Meanwhile, Toronto sits at a comfortable in-between with its “moderate” risk ranking, due to steady price growth surpassing increases in personal disposable income. Condo units under construction are near historical highs, so inventory management is necessary to ensure units do not remain unsold upon completion.
The price of home ownership
The first quarter of 2015 saw the price of an average detached, two-storey home in Toronto increase 9.3 per cent year over year to $803,794, while in Vancouver, it was up a whopping 10.3 per cent at $1.26 million, according to the latest Royal LePage House Price Survey. It’s no wonder Canadian homebuyers are wondering if they’re paying too much.
When it comes to the logic behind the price tag, a real estate agent once told me, “It’s the buyers who set the prices.” This, after walking into an open house and asking, “Do they really think they’re going to get this much?”
While some of Canada’s housing markets have showed signs of slowing, thanks to the dip in oil prices and the economic aftermath, real estate in Toronto and Vancouver continues to rise – out of reach, many fear.
Survey says...
According to a survey conducted by Ipsos-Reid on behalf of the Appraisal Institute of Canada, seven per cent of Canadians plan to purchase a home or property in the next year.
Of those, a whopping 69 per cent are worried about inflated prices.
Thirty per cent of those surveyed who are not planning to purchase a property within the next year were influenced by their fear of overpaying.
In a hot market fuelled by the spring real estate rush and low lending rates, perhaps homebuyers should shift their thinking from, ‘is it overpriced?’ to ‘how badly do I want it?’
About Lydia McNutt
Lydia McNutt is an award-winning writer and editor.