Ontario house prices may be 25% overvalued due to condo threat

Average house prices across Ontario could be overvalued by as much as 25 per cent in part because of an oversupply of condominiums in Toronto, ratings agency Fitch warned Wednesday.

Number of condos under construction has increased by 50% since 2011, agency warns

A majority of the 80,000 condos under construction in Ontario right now are in downtown Toronto, ratings agency Fitch says. (Canadian Press)

Average house prices across Ontario could be overvalued by as much as 25 per cent in part because of an oversupply of condominiums in Toronto, ratings agency Fitch warned Wednesday.

According to Fitch, a glut of condos could be a threat to the economy and a drag on future price gains. There are currently 80,000 condominiums being built in the province, the vast majority concentrated in downtown Toronto.

That's 50 per cent higher than the level seen four years ago, when the current condo building boom was beginning.

"The significant boost to supply implied by this construction overhang could present a problem for continued price growth, with the market potentially becoming oversaturated," Fitch director Stefan Hilts said. "As a large number of units come on line, prices may soften, which could reverberate throughout the Canadian economy."

While the company figures prices are probably 25 per cent overvalued based on historical trends for things like income, unemployment, and mortgage rates, that's not to say the ratings agency is predicting prices will fall by that amount. Because Canadian mortgages are relatively safer than those in some other places, Fitch said there's unlikely to be the same level of mortgage defaults, which can often start a chain reaction downwards for prices.

Since 2009, home prices in Ontario have grown by an average annualized rate of 7.9 per cent, Fitch noted.

Lower prices would reduce the incentives to build further condo units, which could hit employment in the construction sector that has been one of the big drivers of jobs in the province, Hilts said.

Comments

To encourage thoughtful and respectful conversations, first and last names will appear with each submission to CBC/Radio-Canada's online communities (except in children and youth-oriented communities). Pseudonyms will no longer be permitted.

By submitting a comment, you accept that CBC has the right to reproduce and publish that comment in whole or in part, in any manner CBC chooses. Please note that CBC does not endorse the opinions expressed in comments. Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time.