Economist: Home prices may be 15% overvalued

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CIBC’s top economist is going one better than TD’s, suggesting Canadian home prices may be as much as 15% overvalued and not just the 10% suggested by his counterpart at that other bank.

Still, even that larger discrepancy between fair market values and selling prices won’t necessarily translate into a correction on the same scale, CIBC economist Avery Shenfeld told a gathering of Toronto business men and women Thursday.

"We've largely lent to those who have the income and ability to pay," he said."The catalyst for a correction just isn't there."

Still, he’s among the first to suggest that the price gains Canadian real estate made last year have now pushed them up by as much as 10 per cent over their true value.

In December,  a TD report on the Canadian real estate market argued that house prices in Canada, which increased 7.5 per cent in 2011, were 10 per cent overvalued, reflecting the rapid gains in Vancouver and, to a lesser extent, Toronto.

Also late last year, the IMF cast its own wary eye over the Canadian housing market, warning of the same 10 per cent gap.

Unlike Shenfeld, it expressed concern about the real probability of a correction given international economic uncertainty.

An external shock such as a decline in foreign demand for Canadian exports or weakening of commodity prices could see housing prices across the country fall by that 10 per cent as unemployment grows, choking home sales, says the International Monetary Fund in a background paper for its annual assessment.

Still, on Thursday Shenfeld maintained that further escalation of home prices this year could ultimately lead to the same kind of challenges identified by the IMF.

"If we can get prices to level off,” he said, “we can avoid some of the pain later on."


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