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The Canada Mortgage and Housing Corp. downgraded its risk assessment of the Toronto and Hamilton housing markets.

MARK BLINCH/Reuters

The housing markets in Toronto and Hamilton have become less overvalued and no longer have a high degree of risk, Canada’s federal housing agency says.

The Canada Mortgage and Housing Corp. downgraded its risk assessment of both markets to “moderate” from “high" Thursday, saying that home values now better reflect local economic conditions. That leaves Victoria as the only metro area with a high degree of vulnerability. Over all, the Canadian housing market has a moderate risk rating for the third consecutive quarter.

“The [housing] imbalances were more acute a year ago than they are today,” CMHC chief economist Bob Dugan told The Globe and Mail in an interview. "We’re seeing some healthy adjustments” in larger cities that had been especially vulnerable in recent years.

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CMHC’s evaluation was based, in part, on data as of the end of June. Since then, Canada has seen a pickup in home buying – particularly in Toronto and Vancouver, where affordability concerns persist – suggesting some markets could find themselves under greater pressure in the future.

As part of its quarterly report, CMHC evaluates the national market and 15 urban areas on four criteria: overheating, or when sales greatly outpace new listings; a sustained acceleration in prices; overvaluation, or when prices are higher than levels supported by economic fundamentals; and overbuilding. CMHC assigns one of three overall risk ratings – low, moderate or high – to indicate how vulnerable a housing market is to a price correction.

The Toronto area was moved to a “moderate” risk rating for the first time since the second quarter of 2015. CMHC said that overvaluation concerns were lower, pointing to “declining prices” against a backdrop of growing incomes and population.

That said, the Toronto market appears to be gaining momentum.

In October, Greater Toronto home sales increased by 14 per cent from a year ago, with the average price growing by 5.5 per cent, the strongest rate of growth since late 2017, according to the Toronto Real Estate Board. In 2018, the market cooled considerably in the wake of various provincial and federal regulations aimed at tamping down frenzied activity.

The Hamilton area is back at “moderate” risk for the time since the third quarter of 2016. In its assessment, CMHC said home prices were “more closely aligned” with economic fundamentals. In recent years, Hamilton has experienced a considerable amount of overflow demand from those priced out of Toronto, resulting in rising sales and prices.

Meantime, the Vancouver area has a moderate risk rating for the second consecutive quarter. Prior to that, it had been flagged with a high degree of vulnerability for 12 consecutive quarters, coinciding with rapid price inflation.

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CMHC said Vancouver showed moderate signs of overvaluation, but also noted “lower home prices in different segments of the resale market and growth in economic and demographic fundamentals have narrowed the imbalances.”

Recently, the Vancouver market has started to rebound from moribund activity. In October, Greater Vancouver home sales were up 45 per cent, compared with 2018, though the benchmark price was down 6 per cent and currently sits at just below $1-million.

CMHC also gave a moderate overall rating to the Edmonton, Calgary, Saskatoon, Regina and Winnipeg areas.

Low risk ratings were given to the Ottawa, Montreal, Quebec City, Moncton, Halifax and St. John’s areas.

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