April 26, 2017 / 5:47 PM / 3 months ago

UPDATE 1-Canada housing agency reports overvaluation in several markets

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(Adds details from report, background)

OTTAWA, April 26 (Reuters) - Canada's housing market still shows strong evidence of problematic conditions, the federal housing agency said on Wednesday, though it reported signs of improvement in some markets.

The Canada Mortgage and Housing Corporation (CMHC) downgraded its overall view of overvaluation to "moderate" from "strong" and cited six of the Canadian cities it looked at, compared to eight in its last report in January.

CMHC defines problematic conditions as imbalances in the housing market where metrics depart significantly from historical averages.

Nonetheless, Canada's housing market remains divided into several markets and the major city of Toronto still faces price acceleration, overvaluation and overheating, CMHC's quarterly report said.

An acceleration in Toronto home prices has caused some to call the market a bubble and prompted the provincial government to impose a tax on foreign buyers in Toronto and nearby regions, among other measures meant to cool the market. Prices in Canada's largest city were up 33 percent in the year to March.

While declining inventories of homes for sale in the city as a result of demand outstripping supply is contributing to rising prices, the acceleration in prices is not explained by fundamental economic drivers, CMHC said.

Bank of Canada Governor Stephen Poloz, who has said Toronto prices have become divorced from fundamentals, said last weekend that the foreign buyers tax should help dampen demand.

Ontario's move mirrors a foreign buyer tax implemented last year in Vancouver, which had also seen prices surge, as well as steps taken by the federal government to tighten mortgage lending regulations.

CMHC said there were still strong signs of overvaluation in Vancouver, noting that the sales market has cooled unevenly as moderately priced sold quickly and often over the asked price.

Demand in nearby Victoria remained high with the city showing moderate signs of over heating, CMHC said.

Signs of overvaluation have lessened in Montreal, Quebec City and Regina, while evidence of over building also declined to six cities from eight. (Reporting by Leah Schnurr; editing by Grant McCool)

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