Canada’s housing is 63 per cent over-valued says Deutsche Bank

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There’s always plenty of debate when economists suggest that Canada’s housing is over-valued by 20 per cent so how do you feel about this one? Deutsche Bank has published an overview of some of the world’s real estate markets and says that Canada’s in over-valued by a massive 63 per cent! That’s more than double the figure that the Bank of Canada estimated in December. The bank’s calculations include comparison between median house price and median household income and house prices in relation to rents. The report also takes into consideration the high levels of household debt and the possibility of price correction. Read the full story.
  • Arbitrage on 2015-01-09 9:09:05 AM

    Why draw the comparison between median prices and median domestic income when a considerable number of the dollars spent in the larger markets are of foreign origin? Possibly a contributing factor to the "wow factor" this number produces?

  • Ron Butler on 2015-01-09 10:50:27 AM

    I think that everyone in the mortgage industry needs accept the fact that Canadian real estate has likely over reached. That said: by how much? when will the correction come? how regional will the correction be? will the market correct or simply stagnate?

    It's mostly unknowable, who the heck would have guessed a year ago that oil would be $48.00 a barrel. That's why I have always hated the role of "predictor" with clients. Some clients love to ask and sadly some brokers love to give their "expert advice" on the future of interest rates and house prices.

    We simply don't know: Garth Turner has made a career out of being wrong for 6 years till someday he might be right.

    Here's the thing I do believe, if we have seen 20 predictions this real estate market is overvalued and I think that 20 would be the minimum; then for those of us who advise or deal with private mortgage investors let's be VERY careful. Let's be conservative, let's point out a systemic risk in the chance of a market wide reversal of values, let's talk to investors about 75% LTVs on very simple to re-sell properties. The truth is that 85% LTV second mortgage or speculative development mortgages are extremely worrisome in a marketplace where there have been 20 warnings about overpriced real estate.

  • Angela Wong-Liao - Invis on 2015-01-09 1:25:19 PM

    I believe our role as mortgage professional is to educate and caution our clients. I agree with Ron that we do not have crystal ball, who knows but all these predictions should have some merits and we should caution our clients, particularly private investors.

  • Layth Matthews on 2015-01-09 2:16:25 PM

    Well, the good/bad news is that our housing prices are stubbornly strong because of limited supply, starts are weak. Which will continue to tame employment and the economy - and mortgage rates.

    Many of these groups who measure housing value, are simply holding up housing cost vs. income and the answer is always, "Yes, Canadians have become accustomed to being house poor!"

    But the missing piece is that housing inventories have been managed very carefully here in recent years, which explains why we have the other cadre of forecasters talking about housing shortage.

    So it's a supply side issue as well. Hopefully, the housing sector will start to grow and pick up some of the employment slack that the oil patch is about to feel. Wouldn't be surprised if the CMHC rules loosen! For better or worse.

    Of course, the other thing is demographic factors. I saw another article about baby boomers staying in their homes longer.

  • Ron Butler on 2015-01-09 2:22:59 PM

    Layth, respectfully, the concept that CMHC rules may "loosen" in the near term is just not rational.

  • Faye Drope on 2015-01-09 4:23:19 PM

    Ron, I guarantee that if the housing market does slide (or should i say when it does slide) CMHC will loosen up. This government only seems to know how to interfere, break what wasn't broken then act like hero's fixing their unraveling.

  • Faye Drope on 2015-01-09 5:13:13 PM

    Okay 1. more thing. Deutshe Bank was fined 1.3 Billion for fraud so what do we even care what this institution says about anything?

  • Walid Hammami on 2015-01-10 12:19:14 AM

    If you want to know if real estate is overvalued, then compare it to reconstruction cost (for the same region).

    If reconstruction with same features is about the same then it's not overvalued.

    See how much builders are making and then come up with a conclusion. You can see that a lot of them are having such a hard time with their inventory. The costs are huge they pay private lending fees when they start 10-12% then once they reach a 60% presale they fight with the bank to get a decent interest. Then the city comes and get them to pay taxes, two years pass and they still didn't make a dime, the last units are sold most of the time at cost, unless it was a huge success and a prime spot in that case it would the land that is expensive not he house

  • john jones on 2015-01-10 6:24:13 AM

    Does anybody remember logic. First, when you have a very respected and global bank such as Deutsche bank stating there’s a bubble, I would kind of take their word. Also, when our own banks and government state the very same thing, again, I would kind of take their word. What propels layperson to have an argument against expert analysts when they don’t fully understand economics. Unless laypersons have presented solid evidence to counter Deutsche’s analysis, I would not form an opinion. Talk is cheap. In-depth, logical, and well-presented reports are not cheap. Now, laypersons may argue that the talk of a housing bubble has been going on for years and it hasn’t happen yet. True. But many reports, including that of Deutsche, do not make predictions of a burst. All they are stating is that there is a bubble, there may be danger. Danger signs do not necessarily mean a negative outcome will happen. We live in quantum mechanical universe and the best you can do is make a probable outcome and never a sure outcome. But laypersons who are so sure that there will not be a burst have this sort of thinking that they are beyond time, space, and this quantum mechanical universe that we live in. Soon enough, we will see where the roulette ball will land.

  • Dominc on 2015-01-10 12:13:06 PM

    Psychological profile of the layperson John is referring to should be a person seriously invested in Canadian real estate, with fairly limited education and afraid to lose lifetime achievement expressed in form of a false net worth statement perhaps in line with Utopian standards but in contrary to international accounting practices. So yes, Faye, damn Germans. Were they not also initiators of WWII?

  • john jones on 2015-01-10 2:44:15 PM

    Really now, are we going to tie Deutsche Bank with the Third Reich. Angela Merkel, the chancellor of Germany, just spoke out against the rally of Patriotic Europeans Against the Islamization of the West (Pegida). The rally was an 18,000 strong. Germany's raison d'être is money not war.

  • Dominc on 2015-01-10 2:57:29 PM

    I still like my BMW thou.

  • Faye Drope on 2015-01-12 6:03:02 PM

    All I was saying is if you or I was discredited with Fraud no one would listen to us.

  • Paul Therien - CENTUM on 2015-01-12 6:36:14 PM

    These are all educated guesses based on set parameters, but like any report, we can make reports tell us what we want them too. It is largely dependent on the information we use to generate that report. I won’t pretend to know all, but what I do know is this. People need housing. When rates were a staggering 20%, people still bought and sold homes. Not as many, but they still did.

    Will there be a correction? Sure it is a possibility and with this type of headline it could become a self-fulfilling prophecy.

    Should we be paying attention to what is being reported? Yes, we should, but we as an industry would be better served to ensure that we take the time to understand our clients financial situation and long term goals. That way we can do as much as possible to make sure that we are providing them with advice that matters. We can’t control the market, but we can do our best to help people make smarter decisions, and not just give them a good rate.

  • Dominc on 2015-01-14 10:40:20 AM

    Whatever your desires, Canadian real estate is blown out of proportion to a point that suggests that our dollar doesn't have much buying power and this is going on for years now and not only in our 3 big ones, but right across the country with the exception of perhaps North Pole, or close to. We live in the country of high standards (or we think so) but housing and life in general should be enjoyable experience rather than constantly being exposed to head lines suggesting how much we are being raped by the purchase, never mind the extend of economical slavery most of us willingly called upon ourselves. People should take more vacations when vacations are due, travel the world, educate themselves about life and costs of living in other places and compare with the outrageous costs at home.

  • Dominc on 2015-01-14 10:54:39 AM

    One think I'd like to ad to our real estate reality: "Are you kidding me?"

  • Ron Butler on 2015-01-14 11:06:31 AM

    Kudos Dominic, I agree with you; "house porn" is so prevalent in Canada, bigger, fancier, more modern. I see so many 55 year old couples in 3400 sq ft houses with finished basements. The must not go into some rooms for months at a time. Go on vacation, sit at a restaurant patio all day in the summer sipping Gin and Tonics and talking to your friends, go on vacation again!! Quit planning the next kitchen reno.

  • Dominc on 2015-01-14 11:47:03 AM

    House porn or prostitution ring, one thing is for sure, our people will do anything to save their houses. Sadly, that's their lives, pitiful as it may sound.

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