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Canada’s housing agency has warned the country’s real estate market is overheated, overvalued and at risk of a downturn, as home prices continue to climb in most markets in Ontario, Montreal and Atlantic Canada.

In its latest housing market assessment released Tuesday, Canada Mortgage and Housing Corp. identified price acceleration as a problem nationwide and issued its highest risk rating for the country.

“Exceptionally strong demand and home price appreciation over the course of the pandemic may have contributed to irrational expectations of continued price growth and, in turn, more buyers entering the market than was warranted,” the report said.

This is the second time CMHC has issued the warning for the entire country. The first was during the 2016-2017 real estate frenzy in Toronto and Vancouver, when prices rose at a record pace.

The current real estate boom has spread into smaller cities and suburbs, with buyers taking advantage of low mortgage rates to purchase bigger properties. Home prices in some parts of Ontario are 35 per cent to 55 per cent higher than before the COVID-19 pandemic, according to Canadian Real Estate Association data.

“We are now detecting price acceleration for Canada as a whole,” CMHC chief economist Bob Dugan said on a conference call Tuesday.

Now, six of the 14 census metropolitan areas (CMAs) assessed by the agency are in its high-risk category. That is up from five in the agency’s previous report issued in March.

Montreal is the latest addition to the highly vulnerable list that includes Hamilton, Toronto, Ottawa, Halifax and Moncton.

CMHC analyzes the country and major cities for evidence of overheating, price acceleration, overvaluation and excess inventories. The report identifies problems or what it calls “significant imbalances” that could increase the risk of a downturn and drop in prices. A CMA is a city with a population of at least 100,000, of which 50,000 or more live in the core.

The agency said home prices in Montreal have “accelerated to a level not consistent with housing market fundamentals.”

The typical home price in Montreal has climbed 10 per cent to $499,000 in six months on a seasonally adjusted basis, according to the CREA’s home price index, which calibrates for expensive transactions. The typical single-family house price there has jumped 12 per cent to $568,100 over the same time period.

Real estate price inflation is even higher in smaller markets such as Bancroft, Ont., where CREA’s price index is up 32 per cent over six months. In British Columbia, the Okanagan Valley and Chilliwack region are up 18 per cent and 16 per cent, respectively.

In the more expensive parts of B.C., the typical price of a single-family house has jumped by at least $100,000 in six months. That includes Vancouver Island, Victoria, the lower mainland, Vancouver and the Fraser Valley, according to CREA’s seasonally adjusted data.

However, CMHC said Vancouver had a low level of vulnerability to a market downturn because the rate of price growth was not out of the ordinary and sales have slowed. The report said Victoria had only a moderate level of risk because, although there were signs of overheating and severe price increases, it was not overvalued.

Over all, steep price increases across most of Canada have worsened affordability. The federal Liberal Party has outlined plans to help young Canadians buy real estate. One proposal to make home buying easier is to slash CMHC’s mortgage insurance rates by 25 per cent. CMHC has not said whether it supports this plan.

Although it was already well known that many parts of the country’s housing market are overheated, private sector economists said the CMHC assessment is still valuable.

“Some renewed pointed concerns about how hot prices remain are entirely appropriate,” said Douglas Porter, chief economist with Bank of Montreal. “While this may seem like old news, it’s still new.”

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