Canada’s housing market is moderately overvalued but is not in a bubble, according to BMO Nesbitt Burns.
“The Canadian housing market is unlikely to suffer a U.S.-style collapse,” wrote economists Earl Sweet and Sal Guatieri in a research note titled “Canadian housing: Pricey, not dicey.” They also wrote that “a key and overriding difference is the quality of loan origination in the past decade, and other institutional factors such as mortgage insurance and recourse against defaulters.”
The Economist recently published a report that stated the Canadian real estate market is overvalued by 24 per cent. The magazine used home prices and rents as the measure, whereas comparing prices with personal income is a “superior methodology,” according to Sweet and Guatieri.
They found prices peaked at 18 per cent late last year in overvaluation. But a 3-per-cent drop in prices this year along with moderate income growth cut it to a “less worrisome” 11 per cent in the third quarter.