CMHC says list of housing markets deemed overvalued is growing

Hamilton has joined Vancouver, Toronto, Saskatoon and Quebec City on Canada Mortgage and Housing Corp.'s list of markets it considers to be strongly overvalued.

The findings are included in CMHC's market assessment released Wednesday.

CMHC said the evidence of overvaluation in the Hamilton market went from moderate in its April report to strong.

"In the Hamilton [census metropolitan area], home prices are higher than fundamental drivers such as population, employment and income would warrant," CMHC said it is report.

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The federal agency said the ratio of sales to new listings in Hamilton in the first quarter of this year was 84 per cent  —the highest quarterly level on record, and well above the 75 per cent threshold used to identify evidence of overheating.

"Many homebuyers come to Hamilton from elsewhere and as such, add to sales but not to listings even when they are repeat buyers," CMHC said.

According to the report, Vancouver and Toronto are both concerning markets.

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"The level of evidence of problematic conditions for Vancouver has been raised to strong from moderate where we detect a combination of overheating, price acceleration and overvaluation," CMHC said.

Robyn Adamache, CMHC's principal analyst for the Vancouver market, said the strong evidence of overvaluation is "mainly because single detached home prices are higher than those supported by economic fundamentals."

The situation in Toronto remains unchanged, with strong evidence of problematic market conditions driven by price acceleration and overvaluation.

Taking a national view, CMHC said the level of evidence of problematic conditions has been raised to moderate from weak.

"In particular, CMHC now detects strong evidence of overvaluation for Canada as a whole," the agency said.

For its quarterly assessments, CMHC looks at housing markets to gauge their health based on these factors:

• Overheating — when demand is significantly and persistently outpacing supply.
• Overvalue — when prices are higher than they should be based on economic fundamentals.
• Acceleration — when house prices are increasing faster than household costs of living are.
• Overbuilding — when supply of new homes significantly outpaces demand.

The agency rates each market on a colour-coded scale: green means there is little evidence of that factor, yellow means there is moderate evidence of it and red means there is strong evidence of it.