Industry reacts to claim of ‘20% overvalued’ housing market

The Bank of Canada’s interest rate cut last week was followed by a Fitch Ratings report that called Canada’s housing market 20 per cent overvalued, an assertion that has ignited agent anger.

“There are still pockets in both markets that are still very affordable. Prices will always be inflated when demand outweighs supply and I think that’s what we’re seeing here,” Erica Mary Smith, a broker of record with Stomp Realty Inc., told CREW

“I don’t think that this rate cut changed much or that the market is overvalued because demand was already so strong in markets like Toronto and Vancouver, and things are starting to stabilize in other markets.”

The agent’s comments follow the credit agency’s prediction that Canada is in for a housing correction. Following the rate cut by 25 basis points last Wednesday, the big banks followed suit by slashing their prime lending rates.

Back in May, Fitch Ratings reported that the market was 25 per cent overvalued. The Bank of Canada’s rate cut saw the credit agency drop its prediction by five per cent.

“Given the current rate environment, which has been at near-record lows for several years, Fitch does not expect the rate cut to have much impact on market mortgage rates, or on affordability for current borrowers,” the credit agency said in a release.

“However, a number of positive market factors are expected to moderate any negative price pressure. Most importantly, the Canadian mortgage market does not have significant exposure to riskier mortgage products that would be at high risk of default.”

The housing price correction will be felt in markets like Alberta and Quebec, according to Fitch, where prices have been flat. But the housing markets in Toronto and Vancouver are so hot that between lower interest rates, demand and population growth, prices are expected to stay steady.

“Expect a soft landing nationally, where the price growth that has characterized the country’s housing markets for more than a decade will abate, with modest declines to follow,” said the Fitch report.
 

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COMMENTS

  • by lol 2015-08-15 6:18:31 PM

    Nonesense@nonesense.com

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