# Over and under-valuation of real estate worldwide



## Robillard (Apr 11, 2009)

Next week's issue of the Economist has an interesting article about the scope of over-valuation and under-valuation of real estate in various countries. Here is a link in case you are interested:
http://www.economist.com/news/finance-and-economics/21569396-our-latest-round-up-shows-many-housing-markets-are-still-dumps-home (This article may be behind a paywall.)

It's interesting that Canada's has out-performed Australia's since the end of 2007, and that Canada's real estate, on average is even more over-valued than Hong Kong's on a price-to-rents measure.


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## HaroldCrump (Jun 10, 2009)

According to this, Canada is the _most_ overvalued market based on price/rents ratio and second most over-valued based on income-to-price ratios.
And we have pundits from ReMax and CREA saying there is no bubble


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## carverman (Nov 8, 2010)

Robillard said:


> Next
> and that Canada's real estate, on average is even more over-valued than Hong Kong's on a price-to-rents measure.


maybe this is the reason for the overheated housing market in Vancouver and Toronto?
http://ca.finance.yahoo.com/blogs/i...e-cash-flooding-canada-borders-162935775.html



> Newly affluent Chinese nationals are bringing big wads of cash into North America the old-fashioned way -- tucked into wallets, purses and suitcases at airports -- and it appears a chunk of it winds up in Canada's housing market.


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## Jungle (Feb 17, 2010)

They call that HAM. Hot Asian Money.


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## andrewf (Mar 1, 2010)

Don't worry folks, a nice soft landing is in store for us. Price will plateau for 'a few years' (or decades) while incomes and rents catch up to housing values.

[/everybroker]


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## dogcom (May 23, 2009)

Hard or soft correct they will and now we are seeing it. Sellers will not sell at lower prices and buyers will not buy but at some point the sellers will capitulate and prices will fall. Having said that if you own detached housing in Vancouver and you don't have to sell you will be a winner over time as long as you are close to the city. There are stupid condo's because I hate condo's and townhouse's which are fine, galore but there is only so much detached housing.


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## sags (May 15, 2010)

A mainstream media report on the dangers of leveraged property and falling prices.

There will probably be many more similar articles in the future.

The financially savvy people at the bank lent them the money as well.

http://business.financialpost.com/2...tments-leave-couple-with-1-5-million-in-debt/


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## emperor (Jul 24, 2011)

I always wanted a home but refuse to pay such insane prices. I was hoping for a correction, now I'm not so sure. The goverment has invested so much into houses that if the market goes belly up so will Canada. Scary stuff. I thought maybe houses would level off until income raised but over the last 3 years my expenses just keep going up, too many takers in Canada not enough contributers.


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## andrewf (Mar 1, 2010)

We've spent the last ten years overinvesting in housing. It can't go on forever. Housing will have to become a relatively less important part of our GDP, and business investment and exports will have to make up that shortfall. I think that is perfectly desirable.


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## dubmac (Jan 9, 2011)

My home assessment (duplex) in Vancouver is down 10%...not sure that it is as hot as some say - I think it's cooling.


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## Cal (Jun 17, 2009)

Its funny how when you look at the chart, the return on investment potential for RE is quite poor. Technically that alone should drive investment money out of RE, into other forms of investments, causing RE values to fall, in turn making it more affordable in comparison to incomes.

IMO reducing the RE investment exposure in the markets would be the best way to further attack this issue. (ie change rules further to curb investment lending, while keeping raters low, to stimulate the economy)


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## sags (May 15, 2010)

Bad news for Canada............it is the most over valued real estate in the world, according to the statistics used by The Economist magazine.

78% over valued on price to rent ratio.

34% over valued on income to price ratio.

Soft landing with those statistics............hard to see, but it is true the highest over valued real estate is in a few geographical areas. Problem is that is where most of the people who own homes happen to live.

Home owners are counting on low interest rates, and even the news media talks about the Bank of Canada rates.......but the BOC doesn't set mortgage rates, the bond market does.

The money is flowing out of bonds and back into the equity markets.........which means higher interest rates on mortgages to attract buyers of mortgage bonds, unless the government steps in to stabilize the bonds. The problem there is the size and scope of the mortgage market may overwhelm the government's ability to intervene.

Falling prices amid rising interest rates...............the perfect storm.

http://www.canadianbusiness.com/blo...t-overvalued-in-the-world-says-the-economist/

We were thinking of buying a townhome condo in the fall........but now wonder if we shouldn't wait a while longer to see what happens. Prices aren't rising..........so there is no rush.

Or..........are the statistics just noise?


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## sags (May 15, 2010)

I also read an interesting piece on the ZeroHedge website.............that US real estate sales are being propped up by huge purchases of homes by private hedge funds. The Blackstone fund bought 1 Billion worth of homes under a subsidiary company and plan to rent them out.

As per the Economist statistics.............US home prices are undervalued by 7%, and they can actually earn a profit buying and renting, especially since they have no leverage.

Down on the farm............big funds are paying cash for farmland and renting it out. Without a mortgage, they can afford to do what the farmer next door can't afford to do.........buy land and make a profit.

Warrren Buffet was right............we are becoming a nation of sharecroppers.


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