Home > real-estate > Objective comparables of Housing – US vs Canada

Objective comparables of Housing – US vs Canada

I want to summarize conclusions from an IMF working paper on Canadian Housing:

Is the Canadian Housing Market Overvalued? A Post-Crisis Assessment

At end of Q2 2009 which coincides roughly with the bottom (April 2009) in house prices nationally, house prices in:

  • Alberta & British Columbia overvalued by about 8-9%
  • Saskatchwan overvalued by about 4%
  • Ontario is overvalued by about 2%
  • Quebec is fairly valued
Chart from IMF paper showing overvaluation of Canadian housing at end of Q2 2009

Source: IMF (via Infectious Greed)

If you believe the above conclusions like I do then the current house prices are overvalued by the rise of 14.5% from the trough in April 2009 to May 2010 nationally and certainly more so in the Western provinces.

I have posted a chart of the peak to trough decline and the subsequent rise from the trough here but I will include it here for clarity.

Source: Teranet

 Traditional Measures

Price-to-Income makes it possible for a consumer to purchase a house and Price-to-Rent ratio measures the possibility of purchasing the house as an investment to earn rental income… Price-to-Rent ratio is sometimes compared to the Price-to-Earnings ratio of an publicly traded stock…

The 2-charts from the paper say it all… overvalued!

Price-to-rent & Price-to-income ratio for Canadian Housing

Source: IMF

And lastly, some comparables and an update to my earlier post “Is Canada’s housing market about to collapse US style?

  US – Case-Shiller 20 City Canada – Teranet 6 City
Trough-to-Current 4.66% 14.37%
Peak-to-Trough Drop -31.82% -8.87%
Trough-to-Current Duration (Yrs) 1 1.08
Peak-to-Trough Duration (Yrs) 3 0.67

Source: Standard & Poors, Teranet

Yes, the scary issue is ~15% rise in a short period of 8 months!!

IMF Paper – Is the Canadian Housing Market Overvalued? A Post-Crisis Assessment (Source) (via Infectious Greed)

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  1. July 30, 2010 at 10:58 PM | #1

    Those data are also 1/5 years behind. Price-income and price-rent ratios rebounded significantly through 2009. It’s scary to think it, but Canada is looking mighty overvalued right now…

    BTW good work. Like the presentation.

    • July 30, 2010 at 10:58 PM | #2

      typo:1.5 years

      • July 31, 2010 at 7:10 PM | #3

        thanks jesse.

        you are right, the data on price ratios is about a year old (end of Q2 2009) and the ratios have expanded since then so by that measure we would be even more overvalued!

  2. July 31, 2010 at 4:58 AM | #4

    very informative!

  3. July 31, 2010 at 4:59 AM | #5

    very informative

  1. August 5, 2010 at 9:20 AM | #1
  2. August 5, 2010 at 9:14 PM | #2
  3. September 4, 2010 at 10:53 AM | #3
  4. March 16, 2011 at 3:43 PM | #4

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