Rising House Prices in Canada Raise Concerns about Overvalued Market
Canadian home prices increased 0.1 percent in October following no changes the previous month, raising concerns the true north’s housing market is overvalued. On an annualized basis, house prices rose 1.5 percent, the smallest annual hike in more than three years.
The New Housing Price Index is released on a monthly basis by Statistics Canada. The indicator captures price changes of new residential homes across Canada.
The city of Hamilton was the biggest contributor to the national increase. House prices in the city rose 0.6 percent, as new developments and improved market conditions continue to keep price levels elevated. The largest monthly price jump occurred in Windsor, Canada’s most southern region, where home prices increased 0.7 percent.
The consistent rise in home prices has raised concerns of a housing bubble. According to Deutsche Bank, Canada’s housing market is the most overvalued when compared to 19 other developed nations. The global financial services provider believes house prices in Canada are overvalued by a whopping 60 percent.
Based on Deutsche Bank’s analysis, “anyone in the market for property might want to avoid Toronto or Vancouver,” according to the Wall Street Journal.
Canadian home prices are 88 percent overvalued compared to rent and 32 percent overvalued compared to income, Deutsche Bank’s analysis concluded. Belgium, New Zealand, Norway and Australia round out the top-five most overvalued housing markets in the developed world. Japan ranks the lowest, according to Deutsche. Home prices in Japan are undervalued by about 39 percent.
According to Re/Max, national home sales in Canada will rise 2 percent to 475,000 units in 2014. The price tag on an average Canadian home is expected to rise 3 percent to $390,000 by next year.
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