The Globe and Mail recently came out with an article comparing different studies of Canada’s housing market. What was striking was how different the results are. According to Deutsche Bank, houses are 60 percent too expensive, while according to economist Will Dunning they are actually undervalued by 9 percent. Here are all seven estimates:
Deutsche Bank: +60 percent
Fitch (rating agency): +24 percent
Bank of Canada: +20 percent
IMF: +11 percent
TD Bank: +11 percent
CMHC: +3 percent
Dunning: -9 percent
How can they be so different? One reason is that they used different valuation metrics. But a more simple explanation is that the answers depend on the particular stance of the forecaster, and the message they are trying to give.
Fitch (at +24 percent) is sending a warning.
The Bank of Canada (+20) is sending a warning but trying not to be alarmist.
The IMF (+11) is playing it safe.
TD Bank (+11) is also trying to play it safe, since it is exposed to the housing market but mostly protected against declines by government insurance programs.
CMHC (+3) has a lot to lose since they are on the hook for insurance. Safe bet that they will never predict a decline.
Will Dunning (-9) works as chief economist for the Canadian Association of Accredited Mortgage Professionals.
And Deutsche Bank (+60)? Maybe they’re just genuinely worried.