The Organisation for Economic Co-operation and Development (OECD) has ranked the Canadian housing market the third most overvalued in the world, finishing third behind Belgium and Norway (and followed by New Zealand and France). The ranking is based on two ratios, price of homes/rent amounts of homes which measures the profitability of home ownership, and price of homes/income which measures affordability. If the ratios are higher than average for an extended period time, the market is deemed overvalued.
According to the OECD the Canadian market is not only overvalued, but its prices continue to rise. The organization states “Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise of income growth were to slow.” The two specific markets carrying the trend are reported to be Vancouver and Toronto. Despite these warnings, housing analysts in Canada do not expect a severe correction.