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CMHC Warns That Housing Bubbles Are Forming Across Canada

Canada Mortgage and Housing Corp. (CMHC) is warning that housing bubbles are forming in certain cities across the country.

The jump in home prices seen in many cities this summer and fall was beyond what could be justified by Canadian income levels and population growth, CMHC said in a new report.

CMHC's Housing Market Assessment warns that Canada's residential real estate market is as vulnerable to a housing bubble as it was earlier this year. The report categorized 15 Canadian cities as having low, moderate, or high vulnerability to a bubble based on whether the local real estate market is seeing overheating, rapidly rising prices, overvaluation or overbuilding.

In particular, CMHC found that the cities of Hamilton, Ontario and Moncton, New Brunswick have become highly vulnerable to a housing bubble amid price acceleration and overvaluation of homes in the second half of this year.

"Pent-up demand, low interest rates and the comparatively mild impact of COVID-19 restrictions on unemployment supported strong sales activity" in Moncton, the report said, while Hamilton has seen a disproportionate increase in sales from buyers in pricier Toronto neighbourhoods.

Overvaluation of homes has also increased in Toronto, Montreal and Regina, although CMHC said all three cities are only considered moderately vulnerable to the type of conditions seen in the late 1980s and early 1990s Toronto housing bubble.

Canada’s national housing agency forecast earlier this year that house prices across the country could fall by 9% to 18% before recovering in 2021.

In its most recent report, CMHC said that close to two out of three borrowers had resumed previously deferred payments on their mortgages at the end of the third quarter of 2020. But the housing agency warned that "in the coming months, we could see higher delinquency rates if some borrowers are unable to resume their payments."