“I've always felt the best model is relevant to rents; what can you get for this house if you rent it out? If you can't get 8 per cent ROI with 20 per cent down, the prices are too high,” one anonymous commenter wrote on MortgageBrokerNews.ca. “That means they're too high in Toronto, but not in Ajax for example.”
According to the central bank, the two traditional methodologies created wide estimate ranges, due to the very different methods used to calculate valuations.
For example, TD Bank and the International Monetary Fund (IMF) both believe Canada’s house prices are overvalued by ten per cent; Fitch Ratings suggest they are overvalued by 20 per cent and The Economist believes the figure sits around 30 per cent.
It came up with a new model which estimates house prices are overvalued by 10-30 per cent; a range that is, of course, line with several other organizations’ figures.
And while some have lauded the Bank for taking a stance on the issue, others believe a more micro view would better benefit brokers, realtors and homebuyers.
“Canada is a huge country with many different local economies. Just like having a single monetary policy for the entire country does not work, coming out and saying that Canada's housing market is overvalued by 30 per cent is also a mistake, especially for the Bank of Canada to come out with,” Jeff, a MortgageBroker.ca reader wrote. “The matter is a regional one, not national.”
Now that the Bank of Canada has jumped into the overvaluation discussion, brokers have weighed in on the organization’s methods and accuracy.