Canada’s housing market among most ‘bubbly’ in world, Economist finds

Canadian House Prices ‘Bubbly,’ The Economist Says As Feds Mull More Mortgage Changes

The Economist has once again declared Canada’s housing market to be “bubbly,” in a survey that shows Canadian house prices to be 30-per-cent overvalued compared to incomes, and 74-per-cent overvalued compared to rental prices.

On the bubble …

Canada’s housing market is still among the frothiest in the world, more than a year after the federal government moved to head off a bursting bubble, findings by The Economist suggest.

In results posted online over the long weekend, the magazine looked at how homes are overvalued or undervalued based on two measures: Price-to-rent and price-to-disposable income.

Where the first measure is concerned, The Economist found Canadian prices to be hugely overvalued, second among 18 countries studied.

Hong Kong was the highest, New Zealand ranked third behind Canada, and the rest weren’t even in shooting distance.

“On this basis, Canada’s house prices are bubbly whereas Japan’s are undeservedly flat,” the magazine said.

On the second measure, Canada ranked just behind France, while there was no comparison to Hong Kong.

The latest findings for Canada are just slightly better than those of last year, presumably the result of Finance Minister Jim Flaherty’s new mortgage restrictions just over a year ago.

Canadian house prices, The Economist said, climbed 1.9 per cent in the first quarter of the year from a year earlier, a slower pace than the 5 per cent in the same quarter of 2012.

Since 2008, Canadian home prices are up 20 per cent.

Canada’s residential real estate market slumped in the wake of those new rules, though has picked up again recently.

Indeed, as The Globe and Mail’s Tara Perkins reports today, Canada’s bank regulator, the Office of the Superintendent of Financial Institutions, has been looking closely at mortgage inflation from the nation’s financial institutions, a signal it could be planning another round of tightening.

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