According to the Canada Mortgage and Housing Corporation (CMHC) report, home prices have risen ahead of economic fundamentals such as personal disposable income and population growth, resulting in overvaluation in many Canadian housing markets. However, the combination of overvaluation and overbuilding should help slow the growth in resales and house prices and lead to a moderation in the pace of housing starts.

“We now see strong evidence of problematic conditions overall nationally. This is fuelled by overvaluation – meaning house prices remain higher than the level of personal disposable income, population growth and other fundamentals would support. This overvaluation coupled with evidence of overbuilding in some centres means that growth in house prices will slow and housing starts are expected to moderate in 2017 and 2018.” — Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation
Report Highlights,

-There is strong evidence of problematic conditions for Canada overall. Overvaluation and overbuilding remain prevalent concerns in several of Canada’s major housing markets. That said, housing starts and MLS® sales are expected to decline in 2017 and stabilize in 2018.
-Housing demand in Vancouver is partially supported by robust employment growth, a growing population and low mortgage interest rates. These factors are expected to remain solid through 2018. That said, some moderation in housing starts and resales is forecast for 2017 and 2018, as the market continues to adjust to recent policy changes as well as an overvaluation of home prices. Price growth is also expected to slow, which should help to alleviate some of the imbalances currently detected by our HMA.
-The Toronto housing market is showing strong evidence of problematic conditions, in part due to imbalances between house prices and fundamental drivers like incomes and population growth. These imbalances are expected to moderate through a slow-down in home price growth in 2017 and 2018 as factors such as rising mortgage rates and modest job growth later in the forecast period lead to resales moving off their record highs.
-In the Prairie region this year, low commodity prices continue to impact investment, employment and housing demand. The result is slower new home construction as builders focus on selling their existing stock of new homes, especially multi-family units. Housing starts are forecasted to stabilize in 2017 as inventory reduction continues to hold back growth. By 2018, reduced inventories, stronger economic and employment growth will help boost new home construction.

Source: CMCH