The Centre for Urban Economics and Real Estate in the Sauder School of Business of the University of British Columbia recently released a study showing whether home prices in major Canadian centers are under- or over-valued. The cities studied were Calgary, Edmonton, Halifax, Montreal, Ottawa, Regina, Toronto, Vancouver and Winnipeg.
To main motivation behind the study was to see if the Canadian housing market was declining at the same rate as the United States housing market. The study’s findings show that despite Canada’s more conservative and regulated lending practices, the housing inventory (as a whole) in Canadian cities is overpriced.
Please continue reading to see results for individual cities, including Edmonton.
The study determined if housing inventory is overpriced by comparing current home prices to to “equilibrium” or “balanced” market levels. According to the study, the equilibrium housing price in any of the given cities is the comparison between market rents for houses and the cost of capital for owning a house (the mortgage rate plus any out-of-pocket costs such as property taxes, minus the long-run appreciation).
The findings of the study are rather interesting. The general trend is that most of the cities are overvalued. Homes in Halifax, Montreal, Ottawa, Regina and Winnipeg are overvalued by about 25%. Calgary and Vancouver inventory are overvalued by between 7% and 11%. Only Toronto is in balance, according to the study’s calculations.
In Edmonton, the findings were a little different. Based upon rent prices, homes in Edmonton are actually undervalued by about 8%. What does this mean for home buyers in Edmonton? It means that you can get a house and pay less monthly that you would be paying to rent a house . It also means that now is a good time to buy if you’re planning to, since homes are undervalued and prices could potentially start rising to come back into equilibrium.
To read the full report released by the Sauder School of Business, please view it here.
If you’re interested in exploring whether purchasing a home now is right for you, as well as whether you qualify, please contact First Foundation.