PrefBlog

More blather about housing prices:

The price-to-rent ratio pegs the level at 60 per cent, [TD economist] Ms. [Diana] Petramala said, but is “skewed” by rent controls, and thus it’s hard to determine whether the prices are too high or if the rents are too low.

The price-to-income ratio puts overvaluation at up to 30 per cent, she added, but that really depends on what you consider income.

“A more encompassing definition of income, including government transfers and investment income, suggests the housing market is only 8 per cent overvalued.”

But it’s affordability that is key, she said, and various readings don’t factor in declining interest rates over the last 20 years. A “more normal interest rate environment” suggest 25 per cent, while current rates suggest fair value.

“However, current interest rates are likely unsustainable, nor are they expected to increase to more normal levels in the near future,” Ms. Petramala said.

“Over all, given the expectations of a modest increase in interest rates, home prices are likely 10-per-cent overvalued.”

Make of it what you will. Personally, I think forecasting the real estate market is about as useful an exercise as timing the financial markets. When I bought my place in 2000, I had lots of people tell me what an idiot I was; but I needed a place to live.

It was a mixed day for the Canadian preferred share market, with PerpetualDiscounts down 20bp, FixedResets off 1bp and DeemedRetractibles gaining 3bp. Floaters got hammered, dominating the bad part of the Performance Highlights table. Volume was very extremely awfully low.

This entry was posted on Monday, February 3rd, 2014 at 9:07 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.