The Deutsche Bank based out of Germany has just recently released a report showing the most overvalued and undervalued housing markets in the global economy, and it’s put Canada at the very top of the list. While the top ten is also made up of Belgium, New Zealand, Norway, Australia, France, Britain, Sweden, Finland, and Spain, it’s our country that is unfortunately, number one.
The bank uses two different metrics to determine the value of housing markets: home prices compared to rent, as well as home prices compared to income. Canada ranked in at 88 per cent and 32 per cent respectively, higher than any other country. The report also noted the amount of condo development that’s been happening here in recent years is also worrisome.
The German bank’s report has garnered a lot of attention, with the Wall Street Journal warning investors of Canada’s overheated market, and providing alternatives that will provide a better return on their buck.
“On the other hand,” says the paper, “if you can get around Japan’s restrictions on foreign investment, an apartment in Tokyo looks like a steal.”
But the report argues against many reports that have come out lately about Canada’s healthy market. Stephen Poloz said last week that we’re experiencing a soft landing, while Re/Max also released its own report last week suggesting that Canada’s market is sustainable for the next five years, and that the market might become even stronger within that time.
But the economy is not made up of just the housing market alone. That’s why in their report, the bank also noted that “it is not only the housing market that is worrying Canada,” pointing to the number of mortgages and household debt people continue to pile on, not to mention consumer debt.
Fitch Ratings also agreed with that this past fall, when they came out stating about the country’s economy in general, “With a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy.”
