Canadian Real Estate Overvalued, According to Report

"A worldwide survey conducted by The Economist magazine shows that, on average, Canadian homes cost 23.9% more than they are worth"

Click on link below for full article

http://www.propertywire.ca/news/latest/529-canadian-real-estate-overvalued-according-to-report.html



Jonathan's Opinion

You'll notice that some people posted comments on this article, and it seems to me that these people are not too "in tune" with economics, or logic.

Of course the 23.9% figure for Canada is an average. Logically it would be impossible for economists to dervie a figure representing the value of a property for every single city in every province of our country. The only plausible way of attaining this number is to look at sample averages.

Those averages represent both sale price and rental rate of returns.

In economics, the "real" value of some thing is determined by comparing the investment to its rate of return, or yield. If the rate of return yields a positive cash flow, then the investment is either properly valued or undervalued. If the rate of return yields a negative cash flow then the investment is overvalued.

In the case of real estate, if a property is purchased with a 20% downpayment (which is mandatory on an investment property), and the rental income is less than the mortgage payment on that property, then that property was overvalued.

So, what this article is illustrating is based strictly on averages and simple economics. The only way to feasibly arrive at these numbers is to take averages. There is no other efficient way.

It is a great article!!