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May 25, 2021

Canadian homes overvalued by 14 per cent: report

The requisite answer when discussing Toronto real estate prices is this: Yeah, I’d buy Toronto property … if I could afford Toronto property.

But while it’s well known – and, to a degree, expected – that the cost of Big Smoke housing is absurd, a new study shows the rest of Canada shouldn’t be one to talk.

According to a report issued by the CIBC, home prices in Canada are currently overvalued by a staggering 14 per cent.

Yes, it appears a nasty recession did little to stop the long-term inflation of national real estate costs – by the bank’s numbers, the average home price has risen by about 23 per cent since the industry’s low in January, 2009, and by about seven per cent above downturn levels.

“By almost any measure, Canadian home prices are overshooting their fair value,” Benjamin Tal, CIBC’s senior economist, told the Star.

Indeed, at least 1.5 million Canadian homes are overvalued, Tal says, and that may precede a price drop of about 5 to 10 per cent over the next year.

But consider, too, that the Bank of Canada is likely to raise its interest rates as early as June 1, a move that will make affordability even rarer as the cost of borrowing goes through the roof.

RBC Economics Research found today that home affordability is primed to plummet this year and in 2011 with higher interest rates, which won’t make owning a home desirable for families with concerns over their income.

In fact, it stands to wonder, how can anyone earning a reasonable salary afford to buy a Canadian home these days?

By Jason Buckland, MSN Money



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Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...