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Canada’s housing agency is warning that the markets in multiple cities are overheated, overvalued and highly vulnerable to a price correction, as home values rapidly escalate throughout Ontario and the Maritimes.

In its latest housing market assessment released Thursday, Canada Mortgage and Housing Corp. added Toronto, Ottawa and Halifax to the highly vulnerable list that already includes Moncton and Hamilton.

Home buyers risk ‘big trouble’ in overzealous bidding

Both Hamilton and Moncton have been in CMHC’s red zone – the agency’s strongest warning level – for two consecutive quarters. Toronto, Ottawa and Halifax got slapped with the riskiest label as home prices rapidly escalated between the third and fourth quarters of 2020.

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But because the report did not analyze smaller cities and semi-rural areas in Ontario, it did not fully reflect the situation in those markets, where prices have soared as buyers have sought more space to work and live.

Smaller regions are not usually on the agency’s radar when they think about housing imbalances, CMHC’s chief economist Bob Dugan said on a conference call. In Ontario, smaller cities such as Tillsonburg, Woodstock and Ingersoll, for example, are up more than 35 per cent.

Opinion: The only way young buyers will afford houses is if current owners give up some of their gains

In Barrie, Ont., the price of a typical detached house jumped by nearly $100,000 over three months to $721,000 in February, according to data from the Canadian Real Estate Association (CREA). House prices in Kitchener-Waterloo have gone up by at least $100,000 over three months. Milton prices are almost $200,000 more than they were in November.

Mr. Dugan said it would be difficult to provide a quarterly assessment on the smaller markets because there are less data and their markets can change faster with less activity relative to the bigger cities.

The national assessment remained at a moderate level, even though more cities moved up the risk ladder and five of the 15 census metropolitan areas hit CMHC’s riskiest mark. (A census metropolitan area is a city with a population of at least 100,000, of which 50,000 live in the core.) The last time the report showed that many cities in the vulnerable group was in early 2017, when Toronto and Vancouver housing markets were overheated.

“Strong housing market activity and price appreciation contributed to the emergence of new imbalances in some markets, or contributed to the worsening of existing imbalances in already vulnerable markets,” Mr. Dugan said.

Hamilton, now largely a commuter city, was once a place that was considered affordable. The average selling price of a detached house is now nearly $800,000. In Moncton, the home price index is up 24 per cent in the 12 months to February.

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Although the pandemic brought an influx of new residents to Moncton and cheap credit has boosted borrowing, CMHC’s senior analyst Tad Mangwengwende said that did not fully account for the price appreciation.

“The level of house prices was significantly higher than the price level warranted by changes in housing market fundamentals,” he said in the report.

Over all, the extreme price acceleration in Ontario is leading some economists and realtors to warn some of the province’s real estate markets are in a bubble.

Economists from Bank of Montreal and Royal Bank of Canada have called on policy makers to address the frothy market. BMO’s Robert Kavcic has described the market as “boiling” and has suggested finding a way to curb speculative buying and blind bidding, where home buyers do not know what their competitors are offering and trump the asking price by hundreds of thousands of dollars.

RBC’s Robert Hogue said what is exacerbating the market is “buyers and sellers expect prices to continue to escalate.” Mr. Hogue said policy makers should put everything on the table including “sacred cows,” such as taxing capital gains on the sale of principal residences.

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