Commenter painted turtle pointed out a couple of interesting news items. First off, a survey by The Economist shows Canadian real estate overpriced by 23.9%, which is high, but not as high as Australia, Hong Kong and France.
“Singapore, Hong Kong and Australia boast the gaudiest year-on-year price increases, even if the rate of appreciation is down a bit from the summer,” the report states. “House prices in China rose by 9.1 per cent in the year to September, compared with a 12.4 per cent rise in May.”
The Economist’s analysis of “fair value” of housing is based on comparing the ratio of current house prices to rents, with the long term average.
Simply put, the purchase price of a house is divided by the rent it could have earned per year, and the result is the price-to-rents ratio.
A high result could mean a house is overvalued, while a low number means it could be undervalued.
You can see the list over at CTV.
Averaging home prices across an entire country must be kind of tricky though. Especially in a country as big as Canada there’s a big difference between the market in Vancouver and Windsor.
All this talk of overpriced real estate must be getting to Mark Carney, because the Bank of Canada governor just said out loud that an abrupt correction in Canadian house prices is a possibility:
Bank of Canada governor Mark Carney agreed Tuesday that an abrupt correction in Canada’s housing market is possible.
Appearing before the Commons finance committee and responding to a question from Nova Scotia MP Scott Bryson, Carney said he was not predicting a significant drop in prices, but given how far prices have risen and the high level of Canadians’ household debt, it could not be ruled out.
Carney told the committee the bank is limited in what it can do to use interest rate changes to encourage Canadians to reduce their debt.
Read the full article over at the CBC.
