Canada's Condominium Magazine

Rapid price growth still problematic for Toronto housing market: CMHC

Canada Mortgage and Housing Corporation has once again red-flagged the Toronto housing market for potential problematic conditions. The corporation finds “strong evidence” of such conditions, mainly in the areas of overvaluation and price acceleration. The strong, rapid price growth in the single-detached home category, which has been ongoing for several years now, has not been matched by growth in personal disposable income and population. It is this dynamic that gives rise to a risk of overvaluation, CMHC finds. That risk is considered strong in Toronto.

CMHC’s Housing Market Assessment (HMA) framework considers three other factors besides overvaluation: overheating, which refers to demand outpacing supply; price acceleration, and overbuilding. Price acceleration in Toronto is now considered moderately problematic, while overheating and overbuilding are both rated weak.

The overall level of evidence of problematic conditions detected by our framework for Toronto remains strong due to the detection of price acceleration and overvaluation.

CMHC says that its framework takes into account factors such as population growth, changes in personal disposable income, and interest rates, as well as developments in the resale housing market and new home construction market. At the national level, there is evidence of moderate overvaluation, as income growth generally has not kept pace with housing price growth.

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Overbuilding in Toronto is not currently a problem, CMHC chief economist Bob Dugan said, “but we’re watching it because we’re conscious of the fact that the pipeline of units that are under construction is relatively high.”

Overbuilding is measured by analysing data on the inventory of completed, unsold units per 10,000 people, and the rental vacancy rate. In Toronto, the rental vacancy rate is low. Strong demand for resale condos has created sellers’ market conditions in that segment. These two conditions suggest that unsold inventory could be steadily absorbed. Builders, Dugan cautions, need to carefully monitor unsold inventories. These have come down recently, he said, but the number of units under construction is relatively high.

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