The whole world might be in a property bubble, but Canada is the second riskiest. That’s the take from Oxford Economics in their latest housing report this morning. Adam Slater, the firm’s lead economist, broke down fundamentals for global markets. He found double-digit overvaluations are widely seen these days. The firm believes a correction is likely to take place, but the longer it’s put off, the worse it will be. Canada is the second riskiest property bubble, only beaten by the Netherlands.

Global Home Prices Are 10% Overvalued
The whole world is overvalued — at least the parts where people eat and sleep. Global property prices are 10% above the long-term trend, says Slater. Using price-to-rent, they estimate the overvaluation rises to 11% for the global index.

Not quite at the pre-Great Recession high in 2006, but getting pretty close. They estimate the price-to-rent ratio reached 13 to 15% back then. However, a different set of economies appear to be at greater risk this time around, such as Canada.

Canada didn’t experience much of a real estate price correction during the Great Recession. The legend is this was due to the prudential lending of their banks, and rock-solid valuations. That’s not entirely true.

Markets like Toronto hadn’t recovered from the previous housing correction by then. On an inflation-adjusted basis, it was cheaper to buy in 2006 than it was to buy in 1990. It didn’t crash because it hadn’t recovered yet. Toronto is about a fifth of the country’s economy, so the legend became that Canada is bulletproof. Even though that wasn’t the take of the current central bank governor back then…read more.