Why CMHC Considers the Toronto Market Risky

Why CMHC Considers the Toronto Market Risky

With such high real estate prices in Toronto, it’s not surprising the CMHC thinks the market is risky.

Earlier this month, the Canadian Mortgage and Housing Corporation (CMHC) once again issued warnings that certain Canadian markets are problematic.

When looking specifically at Toronto, their most recent Housing Market Assessment (HMA) report shows that price acceleration and overvaluation are two factors contributing to the problematic conditions. (CMHC)

Housing prices are rising quite quickly in Toronto. Price acceleration could be, in part, due to speculation – a move which can be seen as gambling. Since property value has been steadily rising, many want in. They buy, hoping to take advantage of rising prices and turn a profit.

Many Canadians are also feeling pressured to get into the real estate market right now, before prices go up once again. They also fear a hike in interest rates, which could push home ownership out of reach. This fear and speculation contributes to housing prices rising faster than they should.

Overvaluation, the second factor that concerns the CMHC, is determined by comparing housing prices to factors like income and mortgage rates. Currently in Toronto, the rise in median family income lags miserably behind the rise in real estate prices. And the spread is getting wider. Since income isn’t keeping up to home prices, the market is considered overvalued.

What are some of the dangers of a risky Toronto housing market?

When homeowners are stretched to the limit, there’s no room for error. A downturn in the economy, a rise in interest rates or a personal setback, like a job loss or illness, can be disastrous. Too many homeowners in the same situation could cause a city-wide real estate meltdown. Fort McMurray struggling with the downturn in the oil industry is a good example of the dangers of a risky market.

But why are prices skyrocketing specifically in Toronto?

Foreign investors are sometimes cited as the reason for such high year-over-year price increases. And with the plummeting Canadian dollar, our real estate can still seem like a good deal for international buyers.

Desperate home buyers are also being blamed for rising prices. Thanks to a hot market, bidding wars and lifestyle inflation, many Torontonians are buying more home than they can afford, leaving them house poor. With no padding in the budget and no emergency fund, one bad luck leaves them scrambling.

Published in the November issue of Toronto Life magazine, the article Mortgages For All – How Over-Leveraged Homeowners Are Turning To Private Lenders And Threatening The Economy offers an in-depth look at this very matter. Author Philip Preville tells the story of a few homeowners who got caught up in the cycle of high-interest loans and faced losing their home.

Preville does a good job of looking at both sides of the coin. He lays out the dangers of turning to private loans, but also gives examples of private lending to help homebuyers get out of a bad situation. My services and website powerofsalesontario.ca was featured in the article – check it out to learn more about how I have helped over 300 homeowners in the Toronto area.