Canada’s housing market most overvalued in the world, Deutsche Bank says

By Michael Babad, The Globe and Mail December 11, 2013 - Canada is home to the world’s most overvalued housing market, Deutsche Bank says in a new study that suggests overvaluation to the tune of 60 per cent. Other groups have put Canada near the top of the list, but the German bank puts it at the top, ahead of Belgium, New Zealand, Norway, Australia, France, Britain, Sweden, Finland and Spain, which make up the rest of the top 10.

Deutsche Bank economists Peter Hooper, Torsten Slok and Matthew Luzzetti came to that conclusion via an average of two measures, ratios of home prices to rent and home prices to income, compared to their historical averages.

On the first, prices to rent are 88 per cent above the historical average in Canada, and on the second, 32 per cent, Deutsche Bank says in the study published yesterday.

Properties in Belgium are deemed to be 56 per cent overvalued, those in New Zealand 51 per cent, those in Norway 49 per cent, and those in Australia 40 per cent.

The study also looks at price bubbles in most OECD nations before the financial meltdown, but cites the fact that Canada, Norway and Australia “have not experienced a burst … yet.”

Among its more notable findings is that, based on the median house price to median household income, Vancouver is more expensive than New York. Toronto, in turn, is just behind the Big Apple.

The report looks at the high level of condo development in Canada, which has been such a concern among policy makers, and notes that “it is not only the housing market that is worrying in Canada.”

By that it means everything from mortgages and credit card balances to personal lines of credit, compared to disposable income, which we know to be at record levels that have prompted repeated warnings from the Bank of Canada and Finance Minister Jim Flaherty.

While many observers outside Canada have warned about a bubble, most Canadian economists say the market won't crash. The Bank of Canada, too, said recently it sees no housing bubble.

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