IMF - Canadian Housing "Vulnerable"; "Some cities are experiencing house-price bubbles"; Review the CMHC

“Canada’s average home price is about 10 per cent higher than models suggest it should be, posing a “vulnerability” to the country’s economic outlook, the International Monetary Fund warns in a new report.” – from article G&M, 22 Dec 2011

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From the IMF report:

“While households’ net worth has been boosted by rising house prices, their debt is at a historical high relative to disposable income, mainly due to rising mortgages. In addition, several housing price indicators are significantly above historical averages and high by international comparisons. Specifically, the price-to-rent and price-to-income ratios are 29 percent and 20 percent above their averages for the last decade, respectively. While there are structural factors that can explain increases in such ratios, their elevated level and other empirical evidence suggest that house prices may be higher than justified by underlying fundamentals, at least in some provinces— staff estimates indicate an average price overvaluation of around 10 percent, with significant regional differences.” …

“Staff suggested that, to minimize these risks, such measures could include larger down-payment requirements for new mortgages and requiring lower debt service-to-income ratios. Staff also inquired whether measures could target housing markets in specific provinces where prices have increased most rapidly. The authorities noted that they were not considering regulations differentiated across provinces. Continued tight supervision of financial institutions would
also ensure conservative underwriting standards and strict adherence to the existing regulations.”

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“Since CMHC is now one of the largest financial institutions in Canada and the key backstop to the housing market, it would be useful to undertake a review aimed at ensuring that CMHC has a modern and effective governance structure and supervision, and assessing the scope for further strengthening its risk management.” – IMF report, as quoted G&M 22 Dec 2011.
From same article:
“Strengthening oversight of the [CMHC] will be particularly important,” given Canada’s record levels of household debt and evidence that some cities are experiencing house-price bubbles, the IMF’s executive board said in a separate statement.