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Winnipeg, Regina housing markets most at risk for correction: CMHC

For sale signs line along a road where houses are for sale in Calgary, Alberta, April 7, 2015. House prices have fallen in Calgary after the price of oil plummeted late last year according to local media. REUTERS/Todd Korol

Two Canadian cities are at “high risk” of a housing correction, but it’s not the ones you might think.

Canada Mortgage and Housing Corporation (CMHC) says Regina and Winnipeg face “problematic market conditions,” due to quickly rising prices, overvaluation and overbuilding, especially in the condo markets.

“In Winnipeg, risk of overvaluation and overbuilding are detected,” said the CMHC in its latest House Price Analysis and Assessment (HPAA), which takes the temperature of Canada’s housing market. The HPAA looks at economic, financial and demographic drivers of housing markets across the country.

As for Regina, “the inventory of completed and unsold units is at a record high,” CMHC says, despite fewer starts in 2014. It notes builders have been scaling back production this year.

Toronto and Vancouver – two cities often cites as being the most overheated due to rising prices and seemingly unstoppable building trends – don’t appear to be raising alarm bells at the CMHC.

“Low overall housing market risk is observed for Vancouver, as none of the individual risk factors are currently detected,” the report states.

There was some “caution” that Toronto and Montreal may be overbuilding, but the CMHC called the risk of corrections in those markets “moderate.”

“Condominium units under construction are near historical peaks,” in Toronto, Montreal and Quebec, the report states.

“Inventory management is necessary to make sure that these condominium units under construction do not remain unsold upon completion.”

Overall, CMHC say risks of overbuilding and overheated markets vary across the country.

“At the national level, modest overvaluation is observed, meaning house prices are slightly higher than levels consistent with personal disposable income, population growth and other factors,” the report states. “Overheating, acceleration in house prices and overbuilding are not a concern at this time.”

Calgary and Edmonton, cities where the housing market has been hit by the impact of plummeting oil prices, are seen as having “low overall risk.”

CMHC notes that sales have dropped in Alberta in recent months, amid cutbacks across the energy sector, “pushing the sales-to-new listings ratio to buyers’ market levels.”

That will reduce any lingering risk of housing market overvaluation in Calgary, the report states.

While the CMHC has a more measured take on the state of Canada’s housing market, other predictions vary wildly. For instance, Deutsche Bank has said the market is overvalued by about 60 per cent, while other forecasts range from about 3 to about 25 per cent.

The Economist recently labelled Canada as the most overvalued housing market in the world, using measure of rental rates, and in the top three based on income.

Bank of Canada governor Stephen Poloz said this week that the degree of housing valuations across the country is to be expected. He also reiterated that the overall market isn’t in a bubble.

Senior Deputy Governor Carolyn Wilkins, who testified alongside Poloz at the House of Commons Standing Committee on Finance earlier this week, said there are signs of a soft landing in many areas of the country. Toronto and Vancouver were cited as exceptions.

“Those two markets are continuing to grow quite robustly,” Wilkins said, according to a report from Reuters.

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