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Ratings agency Fitch says Canadian houses overpriced even as gains slow down – Consult with a Vancouver Mortgage Broker

July 17, 2014 by  
Filed under Recent News

housing-1Chicago-based credit agency Fitch Ratings says Canadian housing is still overvalued by 20% and called for additional steps to cool the market.

The company’s statement comes as new data appears to show house price gains are slowing on a national basis despite the fact there are still cities that continue to show price growth.

The Teranet Home Price Index increased 4.4% in June from a year ago, a slower pace than the 4.6% year over year jump in May.

The composite six index which covers Vancouver, Toronto, Calgary, Montreal, Ottawa and Halifax was up 4.9% in June from a year compared to a 5.1% year over year increase in May. Both the overall and the composite index were up 0.9% in June from May.

“With the housing market having now shaken off the winter blues, price are continuing to rise at a solid pace. That said, the continued deceleration in price growth on a year-over-year basis may be an indication that the Canadian housing market is becoming more balanced&,” said Toronto-Dominion Bank economist Randall Bartlett.

Still, Finch points to numbers from Canadian Real Estate Association which show home prices grew 7.1% in May on a year over year basis.

“According to Fitch’s sustainable home price model, which measures home prices relative to long-term fundamentals, Canadian home prices remain approximately 20% overvalued in real terms,” the company said in its statement.

It noted building permits have picked up in recent months along with sales, supported by historically low interest rates and those factors are driving up affordability.

Policy makers may be required to take additional steps over the short term to engineer a soft landing

Finch also said household debt to disposable income, which reached a record high of 164.1% in the third quarter of 2013 before declining the next two quarters, is making the market “more susceptible” to shocks from higher unemployment or interest rate increases.

The federal government has intervened in the market four times to slow housing down, among the measures being shortening amortization lengths from 40 years to 25 years. It also tightened the rules around government-backed mortgage insurance.

Fitch wants more regulation. “However, the long-term impacts remain unclear, and policy makers may be required to take additional steps over the short term to engineer a soft landing,” the agency said, in reference to the changes made.

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