Canadian homes overpriced by 30% heading for correction

[Ernie Nemeth]

Interesting story from CBC news:

A recent report from the Organization for Economic Co-operation and Development that revealed Canada has the third most overvalued real estate in the developed world offered few surprises for analysts who say the market is heading for a price correction.

Many say the signs are already evident — home sales are slumping, demand is down and housing prices will likely follow suit. As for when, how far or how hard prices will fall, that still remains a guess.
Check out our interactive map tracking house prices across Canada

"The housing market is an accident waiting to happen. If there is some sort of macro shock, there's a lot of dead air where house prices are now and where historically they should be," said Ben Rabidoux, creator of the blog Economic Analyst, which looks into housing and mortgage trends. "And there's a sort of saying that a market waiting for an accident to happen usually finds its accident. And that's how I would describe it."

The OECD report used two housing measures — the price of the average home compared to what it could be rented for and the home costs compared to the average salary.

The report found that based on rents, Canadian real estate is overvalued by as much as 60 per cent and in terms of prices to incomes, real estate is still as much as 30 per cent overvalued.

"There is no denying we're overshooting, vis-a-vis rent, vis-a-vis income, vis-a-vis demographics. So the OECD is not adding anything here to the debate," Benjamin Tal, CIBC deputy chief economist, told CBC News. "That's old news.The interesting question is not that we're overshooting, it's what will be the corrective mechanism, namely what kind of mechanism will we see bring it back to normal."


http://www.cbc.ca/news/business/story/2013/06/06/housing-market-prices-overvalued.html

letting us down easy? preparing us for the next attack on our livelihood? or just simple economic factors working through the system?

[Vitalux]

In my humble opinion,

To create change in society, to cause a major shift in consciousness, all one has to do is turn off the television.:smash:

For in my observations, it is the media that steers the people much the same way a shepherd steers the flock.

For example, just consider that television show property virgins (https://www.youtube.com/watch?v=k0OC7J8PR9E). It tends to convince folks that it is completely normal thinking to pay $800 thousand dollars and carry a horrendous mortgage.
Plus, no home is complete with out granite countertops and the most expensive appliances debt can provide.
Practicality has no :nono: part in while competing for a life style containing anger, hatred and delusion.

[Ernie Nemeth]

Thanks Vitalux. I do not watch any TV. Oops, I lied, I watch, oh I forget the name of the show with the three nerdy scientists and their sexy next-door neighbor. I watch that show while eating my dinner, if I finish my meal before the show is over...I leave and go back to my computer.

[sigma6]

The interesting question is not that we're overshooting, it's what will be the corrective mechanism, namely what kind of mechanism will we see bring it back to normal."

The only thing that would correct it, is a reduction in prices, Real Estate Prices are always over manipulated by the agents. To think, one of the biggest influences on this whole over inflated price thing is a bunch of manipulative agents talking up the prices in every neighbourhood (and we all know how manipulative RE agents can be) just so they can make a few extra dollars commission...)

Serves us right... as long as they are motivated by that commission, this will always happen. It's baked right into the system.

[we-R-one]

The interesting question is not that we're overshooting, it's what will be the corrective mechanism, namely what kind of mechanism will we see bring it back to normal."

The only thing that would correct it, is a reduction in prices, Real Estate Prices are always over manipulated by the agents. To think, one of the biggest influences on this whole over inflated price thing is a bunch of manipulative agents talking up the prices in every neighbourhood (and we all know how manipulative RE agents can be) just so they can make a few extra dollars commission...)

Serves us right... as long as they are motivated by that commission, this will always happen. It's baked right into the system.

I can tell you in the United States this is a misconception. Agents have no affect on the prices based upon receiving a higher commission. There are many factors that do have an affect on the price such as foreclosures and short sales that the agents have no control over. Even funnier, often the client(seller) is the one who tries to over-manipulate the price as they typically feel their house is worth more than the going rate or depending how much they put into a house they expect at least a 100% return on investment which isn't always the case. Those that insist a higher price will find themselves sitting on a home that never sells, which brings me to the next point....why doesn't it sell? Because the bank won't approve a loan for over the appraised value, something an agent has no control over. The value of the house is based on comps of houses sold in the neighborhood with similar specs, not an agent who's seeing extra dollar signs.

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would like to know if this is the same in Canada?

[eric charles]

It all depends what area we live in . Here in Drummondville,Qc prices are a lil too high maybe 10% , but go to Vancouver and a condo will cost you 1 000 000$ Toronto also is absolutely insane .

I bought my house for 108 000 $ , the same house in Toronto would go for 500,000$ thats 400% overvaluation . I really feel for those families that will soon lose everything , when those interest rates rise , thats the end of the Canadian Dream !

[lightseeker]

I hear you all loud and clear, my partner and I have had our two story condo in Ottawa up for sale since April 1rst listed at 268,000.00. In our neigbourhood we are listed at the lowest price, and that was after dropping the price by $4000.00 dollars. Not a lot of showings in this period of time. It is slow going. We may have to drop our asking price again. Fortunately we are original owners, who purchased our current property in 2006 when it was first built.
We are patient and have not plans to purchase should we sell our condo. We are choosing to go back to renting when we do sell our place. But it is a slow go in Ottawa. We live in one of the most desired areas in walking distance to all amenities and school etc. These condos have always sold quickly since 2006. My guess is that a correction is indeed coming. We will still make a profit, just not as much as expected.

[eric charles]

I hear you all loud and clear, my partner and I have had our two story condo in Ottawa up for sale since April 1rst listed at 268,000.00. In our neigbourhood we are listed at the lowest price, and that was after dropping the price by $4000.00 dollars. Not a lot of showings in this period of time. It is slow going. We may have to drop our asking price again. Fortunately we are original owners, who purchased our current property in 2006 when it was first built.
We are patient and have not plans to purchase should we sell our condo. We are choosing to go back to renting when we do sell our place. But it is a slow go in Ottawa. We live in one of the most desired areas in walking distance to all amenities and school etc. These condos have always sold quickly since 2006. My guess is that a correction is indeed coming. We will still make a profit, just not as much as expected.


Yes now is the time to cash out , even losing a couple of thousand is better then losing 100,000$ , Time to get out of those make a quick buck investment properties . I bought my house to raise a family so I am not affected by the lost monetary values . But I may lose a few $ when it comes to refinance in a year or so , RBC and others have already risen the rates , but the prime has stayed the same , Imagine when prime goes up 2,3,4,5,6,7,8,9,10% there's going to be mass exodus out of the cities its not going to be funny .

[sigma6]

The value of the house is based on comps of houses sold in the neighborhood with similar specs, not an agent who's seeing extra dollar signs.

And everyone of those houses was sold by those agents, and who has heard the that old broken record that agents bring up on every presentation, " well so and so house ( the most expensive over priced house that sold in the neighbourhood) sold for $XXX,XXX so this is a real bargain... etc... This is repeated over and over until every house in the Neighbourhood is oversold... then someone always overpays for what ever reason and that becomes the new target, and the process is repeated over and over in every neighbourhood in every city all day every day and so it goes...

a house I was renting in TO was put up for 400,000 and was bought by a couple of lawyers for 487,000. (that was 10 years ago) and they gutted it to the wood frame and brick and rebuilt it from the ground up... So we know who has control of all the money in our society...

[enfoldedblue]

My father is currently selling the house where I spent my childhood. It is a 200 year old stone house on over 100 acres about an 45min out of Montreal. The house with surrounding fields and creeks and forests and old barns is magical to me, and it will be very difficult to see it go, even though I am far away...I feel such a connection to the old oak trees and know almost every big old stone on the property.

In Australia where I live now a similar property would EASILY go for a couple of million dollars. Originally that is what my father wanted to ask..as that was what he felt it was worth. However the real-estate agent told him that his price did not reflect true market value, and that a realistic price was $695 000. In Australia you would be lucky to get a small shack on a 1/8 acre block at the same distance from downtown for that price. When I look at prices of houses in Canada they seem sooo cheap compared to Australia. Since I've been in Australia (16 years) I've been hearing that there is a bubble that is about to burst...and yet I've never seen it go down significantly in any way.

[we-R-one]

Sigma, I was an agent for 6 years and I can tell you the appraiser of the bank is the one who validates the value of the property using comps of homes sold with similar specs. An overpriced home won't qualify for a loan because it can't comp properly to justify the higher price. The agent has no control over this, and since most people who buy a home need a loan in order to complete the purchase, they have to utilize the process that's dictated through the banks. I'm sorry you think agents are ripping people off. Sure, like any industry there are bad agents out there, but I think you're making a blanket statement that's not applicable to all. Being an agent was nothing glamorous. Since I was an independent contractor I didn't get paid an hourly wage or even a salary. Some deals will take ridiculous amounts of effort where I've put in way more time than what I'm getting paid for in order to close the deal, where others seem effortless. We have serious expenses to maintain our realtor status, not to mention advertising, gas, wear and tear on our car, meals, educational expenses..oh and did I mention gas???

Supply and demand has much to do with the pricing of real estate, not a realtors greed.

[Ernie Nemeth]

In Canada it is the CHMC (Canadian Housing and Mortgage Corporation) that regulates the housing market. They decide on how many housing starts get approved. Thier mandate is to protect the investment of home-owning Canadians. They keep housing starts under reign so that there becomes a `shortage`of avaiable housing. This creates an artificial demand and prices go up. Renters, on the other hand, are treated with a different strategy. Renters are potential home buyers. Therefore, the strategy is to move rental prices upwards so that renters consider buying a home outright. This is done by discouraging rental unit construction, thereby increasing the price of rent. The condo market has shot up to compensate - they used to be rental units!

The answers are always right in front of our face, hidden by perception-based slight-of-hand.

[sigma6]

comps of homes sold with similar specs. is just fancy talk for what other properties sold in the neighbourhood, and that is what the agents are constantly touting... so it's the same thing ... and if a buyer becomes mesmerized and wants to pay more, there is no law or bank going to prevent them, they qualify for the loan or they don't...



Supply and demand has much to do with the pricing of real estate, not a realtors greed.
Realtors, owners and buyers can and always will be able to influence the price of houses, I used to have a saying regarding commission.
Commission is commission is commission (lol) meaning the more you sell the more you make... it's real simple, of all the sales and marketing types, I found real estate agents to be the most superficial (that's just me), and I have had to deal with them over the buying and selling of over a dozen family homes, not saying that applies to you of course.... but man what a bunch of fast buck phonies! (they are so caught up in themselves, I could never understand it)...

I worked in every kind of sales and marketing you could think... I thought it was life insurance guys that were the ones to avoid... but I always had a good laugh with them because I could constantly joke about their particular cliche at least, and they usually laughed the loudest.

And I agree Ernie, I think the Canadian market is controlled by big government agencies and have heard that they are keeping a huge number of properties tied up to maintain current property values. So as usual everything revolves around keeping the banks nice and fat and full of profits while everyone else struggles. Same old, same old.

So prices may be "relatively" cheap compared to other places (like Australia?) but compared to the standard of living they are getting retarded. It makes me sick too, because Canada can manipulate a lot of the supply and demand of everything with the big agency policies, same way they cheap out on education and training by controlling the influx of immigration.

I swear Canada is run by the cheapest cheapos on the bloody planet. They can make that beaver on the nickel cry they can squeeze it so hard. Eliminating pennies as a cost saving measure? Everthing in this "country" is run like a corporation. And there is a huge Anglo Freemason influence that controls everything. Need I say more? The population is kept to an absolute minimum. And kept in constant state of recession as far back as 1990...

Re: Montreal. Yes some of the best prices and rents in all of Canada. If you are smart, you learn how to speak French in Canada (sadly I'm not that smart... lol)
And they get all the federal jobs too...

[sigma6]

My father is currently selling the house where I spent my childhood. It is a 200 year old stone house on over 100 acres about an 45min out of Montreal. The house with surrounding fields and creeks and forests and old barns is magical to me, and it will be very difficult to see it go, even though I am far away...I feel such a connection to the old oak trees and know almost every big old stone on the property.

In Australia where I live now a similar property would EASILY go for a couple of million dollars. Originally that is what my father wanted to ask..as that was what he felt it was worth. However the real-estate agent told him that his price did not reflect true market value, and that a realistic price was $695 000. In Australia you would be lucky to get a small shack on a 1/8 acre block at the same distance from downtown for that price. When I look at prices of houses in Canada they seem sooo cheap compared to Australia. Since I've been in Australia (16 years) I've been hearing that there is a bubble that is about to burst...and yet I've never seen it go down significantly in any way.

That sounds precious you should go back to Montreal and keep it up. It sounds like a beautiful property. I do like the farther out more rural properties. There are few similar ones here in the northern parts of Ontario too...