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Friday, April 16, 2010

Does Your City have the Most Overvalued Real Estate in Canada? | Plan B Economics

Does Your City have the Most Overvalued Real Estate in Canada?

Thursday, April 15, 2010

Vancouver, as if you didn’t already know, has the most overvalued real estate in Canada. Thunder Bay has the most undervalued real estate in Canada.

Where does your city rank?

We ran the numbers to rank Canadian cities in order of valuation. The valuation metric of choice for this exercise is the ‘Price to Gross Rent Ratio’.

Price to gross rent ratio = Average MLS price/(rent x (1-vacancy rate) x 12)

This method is similar to the P/E ratio for a stock…except the ‘E’ in this case is gross profits. The rental data was not adjusted for the number of units per house (didn’t see any indication in the CMHC report as to what that was); best guess would have been 3 units per house. Nevertheless, on a relative basis – since the methodology is consistent – the valuation ranks remain the same.

Note: The following analysis uses data from CMHC forecasts for 2010 (published Q1 2010).

Hmmm…Charlottetown looks like a good place for Vancouverites and Torontonians to retire.

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