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
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.
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!
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 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)