Canada's Housing Bubble

November 13th, 2008 www.tradersnarrative.co

Real estate, as an asset, derives its value from two sources: personal income and rents. The first makes it possible for an owner occupied property to be purchased while the second allows for an investor to purchase real estate.

The following charts show the relationship between real estate prices and these two variables:

real estate price to income ratio oecd data

real estate price to rent ratio oecd data

The data is normalized with 100 being the long term average. Here are some quick take aways:

• Japan’s real estate continues to slide into an abyss
• US housing market doesn’t seem so bad now, does it?
• not surprised to see Spain at the top but am surprised at Canada being second
• data hides a lot of regional disparities - for example, within the US, Florida and California would trump Spain
• Ireland is ahead of other markets in correcting - but it also started earlier
• Mr. Greenspan, what happened around 2000? seems to have been an inflection point there

You can check out the OECD report yourself to get the full details. There are many more countries included but I didn’t show them because the charts would have gotten too busy. In any case, they were either too small as an economy or the data was at neither extreme so it wasn’t interesting. Look in the free resource section for the full spreadsheet.