Overvaluation in housing market increasingly at the high end

Overvaluation in the Canadian housing market is increasingly at the high end, according to the latest IMF report, suggesting any domino effect in terms of correction would start there.

The report, which was published Wednesday, says: “Across market segments, single-family homes are a major source of price increases, and there are signs of overvaluation, especially associated with high-end buyers (reflected by uninsured mortgage credit growth).”

However, the report provides a national overview of the housing market, rather than digging down to the regional level.

“The IMF report is very high level,” says Lorne Burns, national industry leader of real estate at KPMG. “It doesn’t really address anything about the regional diversity of the markets in Canada and even within those markets.

“The Vancouver market, for example, has a very expensive high end, but still has pockets that are more affordable.”

The report also highlights deeper downside risks to growth amplified by high household balance sheet vulnerabilities and a sharper than expected correction in house prices

“If you look at housing affordability, there are two concerns,” adds Burns. “One is that debt levels are very high, as [the report] said, 150%. And affordability right now, because of interest rates, is actually at the most affordable it’s been in a long time. Until interest rates move up, we won’t have a change in affordability.”

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