Canadian housing may be most overvalued in the world, says The Economist



(Photo illustration: David Stuart/Getty; iStock)

According to The Economist’s latest house-price indicators, published Friday, Canada may have the most overvalued housing in the world. The news magazine used a price-to-rents ratio to determine that Canada suffers from a “whopping 78% overvaluation.”

The next highest on the list is Hong Kong, at 69%. The lowest is Japan, whose market is undervalued by 37%.  America’s is undervalued by 7%.

The other metric used, price-to-income, doesn’t really paint a rosier picture for Canada. By this measure, the Canadian market is overvalued by 34%, second only to France at 35%.

If a rough correction is in store for Canadians, then, as the article puts it, Bank of Canada Governor Mark Carney “may have shown good market timing with his move to London.”

But whether or not a serious correction is beginning—or already here—remains a contentious notion. According to the latest StatsCan report, the house-price index rose 0.1% in November. The main contributor, says StatsCan, was Ontario, specifically Toronto and Oshawa. But Vancouver, notorious for being the most expensive market in Canada, saw a decline, as did its provincial neighbour, Victoria.

Indeed, on the other end of the spectrum, Canadian Business’s sister magazine, Maclean’s, is saying a crash, or at least a correction, has already begun. One of the big warning signs for a looming drop in prices is a decrease in sales, which, as this graphic shows, is apparent in every major city across Canada—with the exception of Calgary.

Whether that drop in sales portends a crash, a correction or a blip remains to be seen. That said, The Economist’s latest data is ammunition for the bears.

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4 comments on “Canadian housing may be most overvalued in the world, says The Economist

  1. Pingback: Study indicates Canadian real estate is world’s most overvalued | Whatcom County Business

  2. There are some problems here, how can Canada be the most overvalued? Have they checked prices in the UK,, Australia, Swizerland, Italy, are they making that much more there that housing is affordable?. One article says Condos are going to bust based on the number under construction which may be but to justify it they compare the number under construction in Canada to those under construction in New York and Chicago. The problem is New York and Chicago may already have 20 times the condos that Canada has so they may already be saturated which is why there is less construction there.
    I am concerned that we have a lot of Chicken Little’s running around and that through their comments they spook the market to a self-fulfilling prophecy.

  3. Pingback: Knowledge is Power: Autos, Barter, Country Risk Edition

  4. 75% overvalued is right on the mark. When you consider what wages are and how much goods and services as well as being taxed to death by all forms of government . And the biggest reason I know and have seen in Vancouver is the Asian invasion, This doesnt help when our own premier today wants to turn this city into the biggest asian city outside of asia. Ide like to kick her ass to the curb over this one. Our housing is being overpaid by rich immigrants and they can ignore this all they want it is the fact!!All races other than asian are being forced way out in farm land while asia takes over our city. Put me in office and this is going to stop immediately. Our ex finance minister punished regular hard working Canadians by his new rules. And now another agency says they need to tighten mortage rules. Hey get your head out of your ass and start my non canadians buying here that havent even got their citizenship yet. My idea is a 5yr moratorium on ANY FOREIGN BUYERS!!!!!I dont care how much cash they have. They are not Canadian and do not deserve the benefits that we hard working Canadians have worked for. China can go to hell as far as Im concerned. Stay away we dont want your crooked money and your outbidding us on everything including property here.