Cheap borrowing costs are driving up prices in markets around the world
In a survey of housing costs around the world, the Economist magazine says Canada’s housing prices are 35 per cent overvalued when compared to Canadian incomes.
Against the level of Canadian rents, housing prices come in 89 per cent overvalued, according to the Economist housing index.
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In calling Canadian house prices out of kilter, the Economist joins voices such as Bank of Canada governor Stephen Poloz, ratings agency Fitch and even the International Monetary Fund, in pointing out that the rise of house values is out of sync with Canadian incomes.
Of the 26 markets surveyed, the magazine found seven where housing prices are more than 25 per cent overvalued.
Belgium leads the pack, with house prices 50 per cent overvalued relative to income. But also highlighted are Australia, France, Britain and Sweden.
Too cheap to borrow
The Economist puts the blame on “ultra-loose” monetary policy. Mortgage rates are at historic lows around the world.
Cheap borrowing has encouraged consumers to jump in and buy, driving demand and pushing prices higher.
The result is a bubble, as housing prices rapidly outpace both consumer incomes and rental costs.
In Canada, housing prices have risen steeply in the past decade, with the hot markets of Toronto and Vancouver seeing increases of 7.8 per cent and 7.1 per cent respectively in the past year.
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