Hamilton homebuyers are increasingly being pushed out to places like St. Catharines and Brantford by the pressure of rising prices, experts say.

It's a domino effect from the same pressures that are forcing Toronto buyers to look outside that city and seek bargains in Hamilton.

We are not seeing wages growing fast enough to catch up with the rate at which prices are growing in Hamilton. - Abdul Kargbo, CMHC senior market analyst

And it is one of the issues at play in Canada Mortgage and Housing Corporation's decision to issue its first-ever "red" warning for the national housing market Wednesday.

The report says that homebuyers are being priced out of markets and warns that the that problem is spreading beyond Vancouver and Toronto into places like Hamilton.

Abdul Kargbo, CMHC senior market analyst for the Hamilton and Brantford areas, says fundamental factors such as jobs or population growth aren't in line with ballooning prices in the region.

"We are not seeing wages growing fast enough to catch up with the rate at which prices are growing in Hamilton. Prices are increasing much faster than the economic drivers would warrant."

Priced out of the city

Realtor James McHardy sees the dynamic playing out in his dailly work.

He say says there has been a significant uptick in buyers from the GTA looking to invest in Hamilton over the last few years, but that has been followed by some homeowners no longer being able to afford living in the city.

"There are some people who have been renting for a few years, and they may not be able to afford the areas where they're living or want to live," he said.

"It's concerning because they have kids in school or they have their roots here, and some of them are, I believe, being priced out."

This chart shows the trend lines for housing and other key economic indicators. (CMHC)

Much of the issue is centred on people who can no longer afford rents in, for example, the Ottawa Street shopping district.

"There are more people looking at St Catharines, Dunnville, Caledonia and Brantford, particularly those four places because they're the next most affordable."

Rental impacts

Kargbo believes rental vacancy rates will drop over the next few years as renters "pull forward" their demand and put off buying homes for another while.

"Once we start seeing interest rates also creeping up, it will erode affordability, so some renters that would jump into home ownership will probably stay a little bit longer."

The red warning announcement is part of CMHC's Fall Housing Market Outlook, which provides a two-year forecast of housing starts, sales, prices and key economic indicators, and its fourth quarter Housing Market Assessment, which identifies potential problems in Canadian housing markets.

The agency looks at four key signs of concern: Overheating, price acceleration, overvaluation and overbuilding.

Hamilton: Strongly problematic

In its July report, CMHC added Hamilton to a list of markets considered to be strongly overvalued, joining the likes of Vancouver, Toronto, Saskatoon and Quebec City.

The new October report upgrades Hamilton's housing market to "strongly problematic" in its overall assessment, with price acceleration going from weak to moderate and overvaluation continuing to be strong.

The other five cities displaying "strong evidence of problematic conditions" are Vancouver, Toronto, Calgary, Saskatoon and Regina.

Kargbo added that the "strong evidence" of overvaluation in Hamilton comes thanks in part to buyers from the GTA spilling over, seeking more affordable markets, and outpacing the supply.

This charts shows where Hamilton rates in key indictors of "problematic conditions." (CMHC)

Forecasts using 2013 Statistics Canada data estimated that about 30 per cent of the home sales in Hamilton that year could be attributed to buyers from Toronto and its surrounding areas, who see prices in the city as a "bargain", said Kargbo.

He thinks much of that out-of-town demand has continued, which in turn suggests locals are being pushed further out.

"If you look at Brantford, for example, it's a 20-minute drive into Hamilton," he said. "Those are some of the dynamics that we are seeing, and the pressure as a result of price increases."

Kargbo says one of the highlights of the report is that, even though housing prices are likely to continue to grow over the next two years, the rate of growth is likely to slow down.

In the last year alone, he says, the price of an existing home in Hamilton has increased by about 14%. "This time last year, the average price of an existing home was $447,000. This year, as of September, that price is now about $511,000."

In contrast, the average price of a home sold in Brantford last month was $366,310, according to the Brantford Regional Real Estate Association.

Bidding wars, homes sold over asking price

McHardy said it was not unusual for buyers to make multiple offers on properties in Hamilton, and that buyers were increasingly likely to pay well over asking price, but that it's still a case-by-case scenario.

"Hamilton's going through a lot of growth, and there's a lot more eyes on the city. It's exciting, there's a really good food and arts scene and really good green spaces," he says. "It is affordable, especially if you look at prices in the GTA today, however, it's all based on supply and demand. So as soon as they are more sought after, that leads to price increases."

Many of the multiple offers come in on properties in the downtown area or older districts such as Locke Street, James St. North, Gage Park, and more happen during the peak season in May or June, said McHardy.

"At the peak of the market, it's not uncommon to see people pay thousands, or tens of thousands of dollars over asking price," he said.

McHardy says the CMHC warning should be paid close attention to by buyers who are frantic to get a foothold in buying their first home and often overestimate their means.

"I think it's good that there is this flag, because maybe it will allow people to consider all the aspects when they're buying a house," he said. "[Buyers] don't want to be up to their eyeballs in mortgage.

<a href="https://twitter.com/CBCHamilton">@CBCHamilton</a> The last 2 places I liked enough to consider putting offers on both sold 53k over asking. Before that, one at 40k. 😩 —@AniastartswithA

<a href="https://twitter.com/CBCHamilton">@CBCHamilton</a> I bought on the mountain. I paid under asking. —@loftwyr