CMHC to issue 1st 'red' warning on Canadian housing market

Canada Mortgage and Housing Corp. says the spread of affordability issues to real estate markets beyond Vancouver and Toronto will lead itto issue itsfirst "red" warning for the nationalhousing market.

"CMHChas recently observed spillover effects from Vancouver and Toronto into nearby markets," the federal Crown corporation'spresident and CEOEvanSiddallsaid in a column published in the Globe and Mail. "These factors will be reflected in our forthcoming Housing Market Assessment onOct. 26. They will cause us to issue our first "red" warning for the Canadian housing market as a whole."

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"High levels of indebtedness coupled with elevated house prices are often followed by economic contractions," Siddall said Monday in his article. "The conditions we now observe in Canada concern us."

New federal changes that went into effect on Monday have been brought in to tighten mortgage rules with the aim of cooling offthe country's overheated housingmarkets.

Siddall said the new mortgage ruleswill both reduce the ability of home buyers to borrow and will increase lenders' funding costs. He addedthat mortgage rates are expected to rise "modestly in response."

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In aquarterly market assessment released in July,CMHCsaid evidence ofproblematic conditions in theCanadian housing market went from weakin Apriltomoderatein July.

CMHCraised its assessment of the Vancouver market from moderate to strong for strong signs of problems,joining Toronto, Calgary, Saskatoon and Regina.

In the July report,CMHCalso addedHamiltonto Vancouver, Toronto, Saskatoon and Quebec City on its list of markets it consideredto be strongly overvalued.

However, not every market in that report was deemed to be at moderate or high risk of problems.CMHCsaid it saw "weak evidence of problematic conditions" in Victoria, Ottawa,Moncton, Halifax and St. John's. In fact, the overall assessment for Ottawa eased from moderate to weak, the only market to seethat change.