Housing agency maintains 'strong' risk rating for national real estate market

The red tag is the strongest language used by CMHC for what it describes as problematic conditions in the housing market, something it slapped on the overall Canadian market two quarters ago.

The market is characterized by imbalances, defined as when demand and prices are far from their historical averages, Canada Mortgage and Housing Corporation said in second-quarter report.

"For example, in Regina, evidence of overvaluation has shifted from moderate to weak, and the overall evidence of problematic conditions has been lowered from strong to moderate".

CMHC's housing market assessment is meant to be an early warning system to alert Canadians about problematic conditions developing in the country's real estate markets.

Conditions are broken down into four categories, overheating, price acceleration, overvaluation and overbuilding. Vancouver, British Columbia, and Victoria, British Columbia, were also on the list.

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. Among the changes brought in were a 15 per cent tax on foreign buyers purchasing in the GGH, subject to certain exemptions. Centers in eastern Canada are showing weak evidence of overvaluation, while regions in southern Ontario and western Canada are showing moderate to strong evidence of overvaluation.

A construction worker works on building new homes in Calgary, Alberta. "Price growth has intensified and demand is outpacing supply in the rental, resale and new home markets".

The housing agency said the continued rise in house prices "could not be explained by fundamental economic drivers, such as income and population growth - and therefore strong evidence of overvaluation was detected".

Meanwhile, evidence of price acceleration, which may indicate speculative activity, remains moderate, according to the report.