Canada's housing watchdog warns of 'problematic conditions'

Todd Korol/ReutersA construction worker works on building new homes in Calgary, Alberta, May 31, 2010. Gross domestic product grew at a 6.1 percent annual rate, the biggest jump since the fourth quarter of 1999, and by 1.5 percent compared with the fourth quarter of last year, Statistics Canada said on Monday.Canada's housing watchdog maintained its view that there is "strong evidence of problematic conditions" in the market that some economists have classified as being in a bubble.

The market is characterized by imbalances, defined as when demand and prices are far from their historical averages, Canada Mortgage and Housing Corporation said in second-quarter report.

"While the overall assessment of problematic conditions remains strong for Canada, overvaluation has been downgraded to moderate from a previously strong assessment," CMHC said.

"Careful analysis by geography shows that local differences continue to divide the Canadian housing market into several markets: centers in the East are showing weak evidence of overvaluation, while centres in Southern Ontario and the West are showing moderate to strong evidence of overvaluation," it added. In Victoria, for example, the CMHC determined that overvaluation had accelerated from "moderate" to "strong."

The Teranet and National Bank of Canada house-price index showed a 24.8% gain year-on-year in March. It jumped 12.2% for Vancouver.

Separately on Wednesday, shares of Canada's home lenders fell after Home Capital Group said it obtained a $1.5 billion credit line to cope with falling deposits. Home Capital shares plunged by more than 60%.

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