Industry reacts to 63% overvaluation estimate

If you thought the Bank of Canada’s estimation that the country’s housing market was overvalued by 20 per cent was startling, how about Deutsche Bank’s estimation of a whopping 62 per cent overvaluation?

The German bank’s chief international economist, Torsten Slok, circulated a chart deck this week that looked at global housing markets. The calculations include comparison between median house price and median household income, and house prices in relation to rents. It also takes into account the high levels of household debt and the possibility of price correction.

The industry has reacted strongly to the bank’s statement, pointing out that there is no merit to painting the whole of Canada's real estate market with one brush.

"The reality is that real estate is not national," said Michael Dominguez, an investor and Realtor at RE/MAX Jazz Brokerage. "Much like someone trying to predict what the weather is like in Canada, it is made up of regional markets. To use the weather analogy again, the weather in Vancouver can be very different than Winnipeg which is quite different than Halifax."

“I am very disappointed that an organization such as Deutsche Bank would lump the diversified economies across our broad real estate markets in Canada under such a statement,” wrote Judy Marsales, a Realtor at Judy Marsales Real Estate in Hamilton, on the CREW website.

“Clearly, [it does] not understand the variety of opportunities in our vast country. For example, the Hamilton real estate market has been too low for too long and is now showing some very positive signs and we have the statistics to prove it.”

However, another CREW reader thinks Canadian investors and Realtors should not be pulling the wool over their eyes, and pay heed to the bank’s warning. “Prices here are historically high when adjusted for inflation and the informed opinion of outside subject matter experts can be valuable in informing us for long-term strategic planning,” they wrote.

“I own two rental [properties] and look forward to acquiring more, but I’m not so foolish as to ignore reality.”

Dominguez advised investors not to get caught in grand statements of valuations. "I suggest you examine the market you are considering to purchase in, and study if that market's fundamentals are strong," he added. "Is the area growing in population? Will there be more demand for housing in the future in that market? Is there strong employment in the area or good transportation to an area with good employment? If the local conditions are right and interest rates remain competitive, there is no reason for a downturn in the real estate market."

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