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Report: Canadian real estate 60% overvalued

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Guest | 11 Dec 2013, 10:58 AM Agree 0

According to the Deutsche Bank study, the country's market is overvalued in some key markets by as much as 60 per cent, placing Canada top of a very unflattering list.
Deutsche Bank uses a formula that averages two key metrics; namely, home prices compared to rent and home prices compared to income. Those overvaluations are 88 per cent and 32 per cent respectively.
The international media has already jumped on the findings, with the Wall Street Journal suggesting investors give Toronto and Vancouver a wide berth.
“On the other hand," continues the WSJ, "if you can get around Japan’s restrictions on foreign investment, an apartment in Tokyo looks like a steal.”
The take on Canada's market contradicts the analysis of a RE/MAX report released Thursday and suggesting the five-year high for the average home price is sustainable and strong indication of an even stronger market.
Others are less bullish on the market, still grappling with key mortgage rule changes introduced in July 2012 and with high household debt expected to challenge homeowners if and when interest rates increase.
"With a high level of employment and individual net worth tied to the value of the housing stock," warned Fitch Ratings this fall, "a housing downturn could have serious consequences for the overall economy.”
  • JSydneyH | 12 Dec 2013, 01:17 PM Agree 0
    OMG!! Another warning by an international bank who has no direct interest in our housing market other than lending our banks money.

    And to think this was the same bank that was praising the real estate market in the US just before it blew up.

    I didn't trust them then and don't trust them now.
  • robert ede | 12 Dec 2013, 01:31 PM Agree 0
    Ridiculous! I'd say the share price of Deutsch Bank was 60% overvalued, based on the same out-of-date type of X "average" metric vis a vis Y "average" metric, that was taught in first year economics.
    Canada's population is divided by Statscan into quintiles. The bottom 2 quintiles are virtually wards of the state and will never buy a home. Average income of all quintiles is useless as a benchmark.
    Second, price to rent is also obsolete. The inventory of purpose-built apts is 40-50 yrs old w no air/ no laundry and no pizzaz, compared to the swish new condo buildings.
    All the new-grad households are renting downtown in these swish, meet-market high rises. And paying huge rents, thus supporting the investor-owner and forestalling the "bust" that was widely, albeit incorrectly, predicted (even by me)
  • Claude Boiron | 12 Dec 2013, 02:32 PM Agree 0
    The main problem with the Deutsche Bank study is that it does not comprehend the unusual amounts of immigration and foreign investment which Canada enjoys.
    This influx of capital and people has been a huge driver of the Canadian Real Estate markets, and there are no signs that these will slow any time soon.
    Canada is revered as a beacon of stability and safety in a world where many are seeking exactly that environment to live in.
  • Claude Boiron | 12 Dec 2013, 02:32 PM Agree 0
    The main problem with the Deutsche Bank study is that it does not comprehend the unusual amounts of immigration and foreign investment which Canada enjoys.
    This influx of capital and people has been a huge driver of the Canadian Real Estate markets, and there are no signs that these will slow any time soon.
    Canada is revered as a beacon of stability and safety in a world where many are seeking exactly that environment to live in.
  • Edward | 12 Dec 2013, 04:46 PM Agree 0
    Robert - could you point me towards swish downtown condos in Vancouver whose huge rents provide owner-investors with reasonable profit?

    JSydneyH - who is likely to provide the more objective assessment, "an international bank who has no direct interest in our housing market" or RE/MAX?
  • D. Chepil | 12 Dec 2013, 07:51 PM Agree 0
    I think we knew this for a long time. Unless blind, or realtor. Why buy when you can rent?
  • Peter Mazzuchin | 13 Dec 2013, 01:00 AM Agree 0
    Being objective is always wise. Every market has cycles and the 16 year Seller's Market that the GTA has sailed on is unsustainable indefinitely. Savvy Investors have already focused on higher positive cash flow properties in target sun belt states and I only one of thousands of Canadians who have enjoyed the Healthier Returns in the United States. :)
  • Stephanie J. Stafford | 14 Dec 2013, 06:17 AM Agree 0
    I think Real Estate Company can declare high pricing on their houses depends on its quality. We can say that the project was overvalued if we can’t see the high quality in it and a good reason why it is at the high price when it don’t deserved to be. As what the study said, Canada Real Estate had overvalued their home prices compare to other Country around the world, but even if it’s true or not, turning it down can really affects Canada’s economy at this time.
  • Gary L. | 15 Dec 2013, 09:52 PM Agree 0
    Those who have dire predictions for the Canadian housing market are absolutely correct.

    They predicted a downward correction at the beginning of 2008, which was incorrect, then at the beginning of 2009 which turned out to be wrong, then at the beginning of 2010, which was faulty, and so on to the beginning of 2013 which was way off the mark.

    How do I know they'll be right soon? Simple, I'm running out of synonyms for mistaken!!!!
  • Eduard Novak | 16 Dec 2013, 04:19 PM Agree 0
    60%? Maybe 80%? How about 150%? Does it matter? They are the EXPERTS! HAHA! Maybe Deutsche Bank should stick to Deutsche Land and talk about things they ought to know something about? But what do they really know about? Investing? Making predictions? Market analysis? Hardly! How many billions did they lose in 2008 and how many billions did they suck up in tax payer's money as bailout to avoid going belly up? Now, let's compare them to Canadian banks in the same period of time. Aha! Thanks! What about the Canadian economy versus the German economy since 2008?

    I am sick and tired of people spitting out advice left, right and centre. I have lost count how many years these experts have been promising a crash. GO AWAY! People with half a brain can look around, see what is happening, and make a better, more intelligent prediction.

    I understand people being weary of economic calamities since 2008, but this is clearly a case of "get burned twice and you start blowing even on the cold"
  • M. Robertson | 16 Dec 2013, 08:20 PM Agree 0
    People here just don't seem to get it do they? You all think that Canada is somehow immune to what is happening in the rest of the world... that our insigificant population of 38 million people can somehow not be affected like the other 7 billion people have? Wake up!

    We have seen a steady increase in the value of homes in this country for over a decade, with the exception of the odd blip here and there. The fact of the matter is that the rise in cost of housing in Canada is far outstripping the increase in income, and with low interest rates, that is cause for concern. Canadians spend more of their dollar on housing than any other country in the world, the average is 70% of our post tax income. That means that in the event of interest rate increases, the vast majority of homeowners cannot afford to support their housing costs.

    Consumer debt (not including housing debt) is still the highest per capita in the world, and borrowing is showing limited slow down. Household savings remains at an all time low.

    We have, currently, relatively strong employment numbers, but that is still changing with the announcement recently amounting to over 10000 jobs being lost due to companies leaving Canada, or downsizing (Band of Montreal itself announced 1000 job cuts in 2014).

    Unemployment in young adults is at an all time high of 20%, the highest it has been in 60 years, and their average earnings after 10 years of work are predicted to be 15% LOWER than the previous generation.

    The economy in the united states has been largely propped up through government spending, and the bond market has been artificially sustained due to the bond buying programs of governements all around the world. Government obtains its money from tax payers, and the vast accumulation of debt that is occuring due to this buying program is unsustainable.

    The bond market dictates fixed mortgage rates, not the bank of Canada rate - which is being kept low because our economy could not sustain a rate increase now... that is how fragile it is.

    As for Duetchbank not knowing about our market... until 2010 they were the largest purchaser of securitized mortgages in Canada. They pulled out to reinvest in their own country, which by the way has a much stronger economy than ours right now - lower unemployment etc. Factor in that they are also significantly larger than any of the Canadian banks and continue to grow.

    You also need to consider that the only reason why our banks did not go belly up is because of the government, but they too lost big dollars in the US - CIBC lost 13 billion alone. Our housing market did not get hurt because 100% of the mortgages done are backed by the government of Canada through CMHC, or the 90% backing that the government gives Genworth and Canada Guarantee.

    Wake up folks, we have been living high on the hog in Canada for years, and at some point what goes up will come down... just as rates must eventually go up.
  • rodrigo | 17 Dec 2013, 01:00 PM Agree 0
    Canada overvalued?? the country is one of the safest, with a great quality of life, what more does a man need to live in? in my point of view canada have a big potential, i have seen properties and they all look really nice! look multilistingservicecanada.com and you will see i am right!
  • Kent F | 19 Dec 2013, 04:02 PM Agree 0
    @ M. Robertson

    I think you are hitting the nail on the head.

    we need to also consider;

    we are a young country which still has a-lot of growing pain ahead.

    when 20% of young adult work force struggling with employment, chalk up the student debt often acquired, the home ownership is a pipe dream. Mom & Pops will continue to support you at the expense of their retirement nest-egg.

    No one is saving anymore. and spending way to freely (credit debt).

    senior benefits are continually cut, making the "inheritance" that much less. Pensions are being eliminated, CPP is no where near enough to survive on.

    we need to pay attention, as the perfect financial storm is brewing right in front of our eyes!!! open your eyes!!! look at whats coming down the pipe & be assured, the government will not be there to bail us out for our stupid overspending
  • Kent F | 19 Dec 2013, 04:05 PM Agree 0
    @ M. Robertson

    I think you are hitting the nail on the head.

    we need to also consider;

    we are a young country which still has a-lot of growing pain ahead.

    when 20% of young adult work force struggling with employment, chalk up the student debt often acquired, the home ownership is a pipe dream. Mom & Pops will continue to support you at the expense of their retirement nest-egg.

    No one is saving anymore. and spending way to freely (credit debt).

    senior benefits are continually cut, making the "inheritance" that much less. Pensions are being eliminated, CPP is no where near enough to survive on.

    we need to pay attention, as the perfect financial storm is brewing right in front of our eyes!!! open your eyes!!! look at whats coming down the pipe & be assured, the government will not be there to bail us out for our stupid overspending
  • Invest For | 15 Jan 2014, 07:50 PM Agree 0
    In the years to come housing prices will continue to rise, and the ability for one to afford a home will become that much more difficult. Therefore as housing prices continue to rise substantially the gap between the rich and poor will increase. Higher income earners will buy Real Estate and lower income earners will only be able to afford to rent. Or it could be the other way, were housing prices reach such unsustainable levels the market will hit a downturn. In general, over the years the real estate market has risen but not at such a substantial rate, therefore since the rate of rise is not sustainable it will likely cool (rapidly or slowly). Check this blog and share your ideas and opinions here: http://investfor.weebly.com/
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