Canadian homes among most overvalued in the world

TheOrganization for Economic Co-operation and Developmentranks Canadian real estate the third most overvalued of the 34developed countries assessed by the group, based on two metrics tracking what homes cost compared to incomes and rents.

The Paris-basedOECD, which monitors and compares wealthy nations, recently released a report that ranks its 34 membercountries based on two broad housing measures:

• The price of the average home compared to what it could be rented for.
• What the home costscompared to the average salary.

According to that analysis, Canada has the third most overvalued real estate in the developed world, just behind Belgium and Norway, whichare deemed to have the frothiest real estate market under the OECD's terms.

• Check out our interactive map tracking house prices across Canada

Based on rents, Canadian real estate isovervalued by as much as60 per cent, the OECD says. In terms of prices to incomes, Canada faresa little bit better, but the OECD suggeststhe country'sreal estate is still as much as 30 per cent overvalued.

On the opposite end of the spectrum, the OECD says real estate inJapan, Germany, South Korea, Ireland and Portugal is undervalued. In almost all those cases, home prices should be higher than they are, considering rents and income levels.

Based on the numbers, the OECD places Canada in the fifth of five baskets one where real estate seems overvalued but prices continue to increase.

"This is the case in Canada, Norway, New Zealand and, to a lesser extent, Sweden," the OECD says."Economies in this category are most vulnerable to the risk of a price correction especially if borrowing costs were to rise or income growth were to slow."

The latest data from the Canadian Real Estate Association indicates the average Canadian home was worth$380,588 in April1.3 per cent higher than it was in the same month a year earlier.