This article appeared on the Globe and Mail on November 24th, 2011 and was written by Michael Babad.
A new study of global housing markets by The Economist warns that markets in Canada and some other countries still appear “uncomfortably overvalued.” Indeed, the magazine calls it downright frothy in its latest update of house prices indicators.
Overall, the report shows prices falling in eight of 16 countries studied in terms of a price-to-income ratio, which measures affordability, and a price-to-rent ratio.
By averaging the two readings, The Economist warns that prices are overvalued by 25 per cent or more in Canada, Australia, Belgium, France, New Zealand, Britain, the Netherlands, Sweden and the ever-unfortunate Spain.
Here’s a really troubling bit: For Canada, Australia, Belgium and France, housing “looks more overvalued than it was in America at the peak of its bubble.”
The magazine notes that some economists dismiss its measures, citing the fact that lower interest rates – Canada is such an example – can justify fatter prices because they allow heftier mortgages. The magazine responds to that just as Bank of Canada Governor Mark Carney and others have: It will not always be thus, and rates will inevitably rise.
Here’s another warning, also along the lines of what we’ve been told for months now: “Australia, Britain, Canada, the Netherlands, New Zealand, Spain and Sweden all have even higher household-debt burdens in relation to income than America did at the peak of its bubble.”
Canadian housing markets have been cooling down, and many forecasters project a continued softening, though not a crash.