Toronto and Vancouver housing prices are not sustainable

A leading economist says there should be some concern about elevated prices in Toronto and Vancouver, despite a new CMHC report that argues a correction in the Canadian housing market is unlikely.

“We are concerned that high prices in Vancouver and Toronto might not be sustainable in a more normal interest rate climate,” says Sal Guatieri, senior economist at BMO Capital Markets, “though we would agree with its overall conclusion that the national housing market is not at an elevated risk of a correction.”

The CMHC’s House Price Analysis and Assessment framework, published on Monday, says that the Canadian housing market is showing only a modest amount of overvaluation, but it is not showing other risk factors, such as overheating and price acceleration.

The report highlights that the risk of overvaluation is most evident in Montreal and Quebec, but that the trend is improving. It also says there is only a modest risk of overvaluation in Calgary, Halifax and Toronto, and no overvaluation in Vancouver.

Bob Dugan, chief economist at CMHC, says: “Across the eight CMAs examined, there is no overheating or acceleration.
“There is, however, a cautionary note with respect to overbuilding in Toronto and Montreal. The number of units under construction is elevated in these centres. This could develop into overbuilding if these units are completed but not sold.

“To mitigate this risk, builders will need to hit the appropriate balance in channeling new demand between units that are currently under construction but not sold and units that are in the planning stage.”

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