Hamilton’s sizzling housing market has few worries

CMHC said a sales-to-new-listing ratio above 60 is the threshold where prices can rise rapidly, and while Hamilton’s ratio is 75 there’s only “moderate evidence” of overheating. Evidence for the other factors is also “weak” or “moderate.”

The CMHC report judges the condition of housing markets based on four criteria; overheating, price growth, overvaluation and overbuilding.

Overheating is the situation where demand “significantly and persistently” outpaces supply. Over time, that can lead to rising prices. House price acceleration occurs when the growth in prices strengthens over time on a persistent basis. Overvaluation is when house prices remain significantly above what fundamental drivers such as income, population and financing costs will support. Overbuilding is when houses are being built faster than they can be sold.

He noted the number of sales in the market is rising faster than the number of new listings, pushing up the sales-to-new-listings ratio, a trend he said results from coming from other areas pushing up sales without adding to listings.

The seasonally adjusted average home price in the area in the final three months of 2015 was $445,492, down one per cent from the third quarter.

CMHC said it found evidence of overvaluation in nine of the 15 real estate markets included in its quarterly report released Wednesday. Overbuilding was identified as a problem in seven of the markets tracked by the report.

“Overvaluation and overbuilding remain the most prevalent problematic conditions observed across the 15 centres,” said Bob Dugan, CMHC’s chief economist.

The housing agency says overvaluation grew from moderate to strong in Vancouver and Saskatoon between January and April.

In Saskatoon, it was a deterioration in the underlying economic conditions — and not prices — that was responsible for the elevated warning flag. In Vancouver, red-hot prices were to blame.

“Fundamentals are actually quite strong in Vancouver,” said Dugan. “There’s been a lot of employment and income growth and population growth, but prices are increasing by even more.”

In all the other markets, overvaluation remained stable compared to the previous quarter.

Edmonton, Calgary, Regina and Montreal all continued to see moderate evidence of overvaluation, while in Toronto and Quebec City evidence that house prices are overvalued remained strong.

Strong evidence of overbuilding — a measure which suggests that the supply of new homes is outpacing demand for them — was found in Saskatoon and Regina.

Meanwhile, Calgary, Winnipeg, Ottawa, Moncton, N.B., and St. John’s, N.L. all demonstrated moderate levels of overbuilding.

In Toronto, overbuilding in the overall market was weak, but CMHC warned about potential problems in the condo sector.

“We do have some concerns about the high inventory of completed and unsold condominium apartments,” Dugan said.

Despite the fact that 10 of the 15 markets tracked displayed strong or moderate evidence of problematic conditions overall, the agency said that on a national level, signs of trouble are weak.

Dugan says it’s not unusual for national statistics to mask the issues occurring on regional levels.

“Often the national picture looks fairly benign,” he said.

“It’s always when you drill down to more local levels of detail that you can uncover some issues or imbalances that warrant attention. I think that the message from this overall is that the national picture doesn’t represent the level of imbalance in individual markets.”