Yahoo Finance Canada’s real estate market: Correction or no correction?
The Conference Board of Canada is poking holes in an international study showing Canada’s housing market is overvalued, hoping to soothe fears at home about a drastic correction.
In a blog posting on Thursday, the Conference Board says the argument made by the Organisation for Economic Cooperation and Development (OECD) is “a little too simplistic.”
“This is scary stuff and definitely a headline grabber. But I say, hang on just one minute. When looking into these numbers a bit more closely, there is no need to panic,” writes Mario Lefebvre, director of the Centre for Municipal Studies.
His argument comes a couple days after the Canadian Real Estate Association said home sales have been better than expected in 2013 and forecasted a strong rebound in 2014. It also comes alongside a new survey released Thursday showing the majority of Canadians are obsessed with the real estate market.
The recent OECD report suggests house prices in Canada are overvalued by as much as 30 per cent based on a comparison of the ratio of current average house prices to disposable income per capita to its historical average. The picture worsens when the OECD compares the ratio of house prices to rent to its historical average.
According to Lefebvre, Canada is in good company with other countries that the OECD also says are overvalued, including Australia and New Zealand. These are countries with large foreign-born populations, which he says, “significantly alter the landscape” of a country’s housing market.
His argument is that many immigrants come to a country with money used to buy housing, which not only spurs demand, but can also raise house prices without impacting the rate of personal disposable income per capita. That then leads to a higher house price-to-disposable income per capita ratio.
“Therefore, comparing the current ratio to its historical value to determine whether a country is over-valued might be a little too simplistic,” Lefebvre says.
It’s particularly skewed in Canada, where Lefebvre says the share of the foreign-born population has grown to 20.6 per cent in 2011 from 16 per cent in 1981.
“While the Conference Board of Canada does expect modest house price increases in the near future, and even some slight declines in some markets, we stick to our positioning that Canada’s housing market is nowhere near about to correct drastically, as the OECD study seems to suggest,” Lefebvre says.
Also Thursday, a new poll showed Canadians are becoming “increasingly obsessed” with real estate. The poll commissioned by mobile real estate service Zoocasa, says 84 per cent of Canadians survey admit they think about real estate on a regular basis.
"It's understandable,” says Zoocasa president Carolyn Beatty. “For the vast majority of Canadians, their home is the largest purchase they will make in their lifetime. Because it's such a big investment it has become part of our identity and even defines our sense of community.
The results show 85 per cent of Canadians surveyed have window shopped for homes online in the last year, while only 28 per cent have set foot in an open house. The Abacus Data poll included 1,000 Canadians and was conducted during the first week of June.
