Price imbalances are emerging despite "generally weaker" housing fundamentals brought about by COVID-19
Moncton and Halifax joined the traditional red-hot hubs of Toronto and Vancouver as the markets where overvaluation has become most apparent, according to the latest wide-ranging assessment by the Canada Mortgage and Housing Corporation.
“There was sharp pullback in new listings and resulting low levels of inventory,” CMHC said in its report. “This maintained some pressure on house prices in local housing markets that were seeing strong activity prior to the crisis.”
Emerging imbalances have manifested in Ottawa, Montreal, Moncton, and Halifax, particularly during the second quarter of the year, Saskatoon Star Phoenix reported.
“Observed house prices in all four had been growing prior to the onset of COVID-19 and continued growing in the second quarter, despite the general weakness in housing market fundamentals,” CMHC said in its analysis. “This has led to the detection of moderate evidence of overvaluation in Moncton and Halifax while a sustained increase in the rate of house price growth has led to the signalling of price acceleration in Ottawa and Montreal. The Ottawa, Moncton, and Halifax housing markets are all now assessed at an overall moderate degree of vulnerability.”
Bob Dugan, chief economist at CMHC, said that the phenomenon might be lurking in other markets as well, since the incidence of overvaluation is most likely “underestimated”.
“Vancouver and Toronto entered the second quarter of 2020 with a general unwinding of housing market imbalances. However, both experienced an increase in observed house prices for some price measures in the second quarter despite the COVID-19 driven decline in economic and demographic fundamentals,” Dugan said. “This has led to an increase in average overvaluation estimates in both markets.”