Canada's real estate overvalued, survey says
CTV.ca News Staff
Published Tuesday, October 26, 2010 8:40PM EDT
Canadian house prices are overvalued, but not as much as those in Australia, Hong Kong or France, according to a new worldwide survey.
The data published in The Economist magazine's annual survey shows Canadian homes cost on average 23.9 per cent more than they are worth.
That's somewhere around the middle of the pack. The scale ranged from Australia at the high end, where homes are 63.2 per cent overvalued, to Japan at the low end, where houses are 34.6 per cent undervalued.
Canada's house prices were up 4.5 per cent from one year earlier. And between 1997 and 2010, prices rose a whopping 70 per cent, the report said.
Compared to a year ago, when 15 of the 20 countries on the list were in negative territory, this year only four countries were undervalued.
"Singapore, Hong Kong and Australia boast the gaudiest year-on-year price increases, even if the rate of appreciation is down a bit from the summer," the report states. "House prices in China rose by 9.1 per cent in the year to September, compared with a 12.4 per cent rise in May."
The Economist's analysis of "fair value" of housing is based on comparing the ratio of current house prices to rents, with the long term average.
Simply put, the purchase price of a house is divided by the rent it could have earned per year, and the result is the price-to-rents ratio.
A high result could mean a house is overvalued, while a low number means it could be undervalued.
Here are the results of The Economist survey:
- Singapore: 19.2 per cent
- Hong Kong: 58.1
- Australia: 63.2
- China: 18.1
- Sweden: 41.5
- Belgium: 21.6
- France: 42.5
- Canada: 23.9
- Netherlands: 23.6
- U.S.: 4.6
- Denmark: 19.4
- New Zealand: 20.2
- Britain: 32
- Italy: 10.5
- Spain: 47.6
- Ireland: 13.2
- Germany: -12.9
- Switzerland: -6.4
- Unites States Using the Case-Shiller national index): -2.1
- Japan: -34.6