OECD: Canada’s housing market is the third most overvalued in the world

a porch to perch Flickr photo by Grant McDonaldThe past month has seen, if not optimism, than at least a sense of relief when it comes to the state of Canada’s housing market. BMO declared the market was cooling, not crashing, and also reported that some cities were also seeing a spike in interest in the often-maligned condo market.

But a new report on global housing values from the Organisation for Economic Co-operation and Development (OECD) suggests that Canada is especially vulnerable to a price correction.

Here’s how they measured valuation: if the price-to-rent ratio and the price-to-income ratio (a key affordability measure) were above the long-term averages of homes in the country, the properties are said to be over-valued. And with that rubric, Canada comes in third place, behind Belgium and Norway when it comes to over-valuation.

According to the study, because homes in Canada, Norway and New Zealand appear overvalued but prices are still rising, the markets face a higher risk of a price correction, “especially if borrowing costs were to rise or income growth were to slow.”

However, the Bank of Canada doesn’t seem terribly eager to change the interest rate anytime soon. At the end of the May, the central bank announced it was keeping it untouched at 1 per cent while other experts have been predicting there won’t be any borrowing rate shake-ups over the next few years.

The two countries with relatively enviable markets include Switzerland and Germany: houses appear undervalued but prices are rising. The European countries have show “strong growth in household disposable income and favourable financing conditions.”

Greece, Ireland, Portugal, Slovenia, Slovakia, Czech Republic and Japan all have homes undervalued, but prices continue to fall.

For more info, see the chart below…

OECD Home Values

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