Thursday, March 3, 2011

Canadian Housing Overvalued

Housing Overvalued
A new report warns Canada's housing market is reaching the limits of sustainability and could tumble if there is no moderation.The Bank of Montreal's followup on its November analysis finds that Canada's hot housing market is still not in the red zone for prices, but it's close.The bank notes that after slowing last summer, Canadian home sales rebounded in the fall and house prices have kept rising. On average, home prices rose five per cent in the past year to January, while in Vancouver they rocketed 20 per cent. Incomes, however, have not increased nearly as fast. The bank says the ratio between average resale prices and personal incomes nationally is 14 per cent above the long-run trend, up from last summer, but still below the 21 per cent peak that preceded the 1989 crash. But that is not the case in all markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms. Also well-above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

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