Canadian Mortgage Broker News - Canadian house prices overvalued

Canadian Mortgage Broker News - Canadian house prices overvalued


Canadian house prices overvalued
Wednesday, 27 October 2010
Canadian housing is overvalued, but not as much as those in Australia, Hong Kong or France, according to a new worldwide survey.

The Economist magazine’s annual survey showed Canadian homes cost on average 23.9 per cent more than they are worth. Meanwhile the scale ranged from the high end with Australian homes overvalued by 63.2 per cent, to Japan at the low end, where houses are undervalued by 34.6 per cent.

“Singapore, Hong Kong and Australia boast the gaudiest year-on-year price increases, even if the rate of appreciation is a down a bit from the summer,” the report states.

Canada’s house prices were up 4.5 per cent from one year earlier. From 1997 to 2010, prices have increased by 70 per cent, according to the report.

The Economist’s analysis of “fair value” housing is based on comparing the ratio of current house prices to rents with the long-term average. In other words, the purchase price of a house is divided by the rent it could have earned per year.