Edmonton market undervalued by eight per cent, say UBC researchers
Bill Mah, The Edmonton Journal
Published: Tuesday, September 09

EDMONTON - Housing prices in most Canadian cities are overpriced -- with the exception of Edmonton, where home prices are actually eight per cent below where they should be in a balanced market.
That’s the finding of a study, Are Canadian Markets Overpriced? by researchers at the Sauder School of Business at the University of British Columbia released Monday.
Their research shows that with the exception of Toronto and Edmonton, single-family houses in Canada’s major cities are overvalued, priced up to 25 per cent higher than they should be to balance with rents -- given interest rates, holding costs and historical rates of price-appreciation.
"The decade-long boom in Canadian markets is over," said Tsur Somerville, the study’s lead author, in a release.
The researchers looked at current house prices in nine Canadian cities and compared them to their equilibrium levels, which are derived from the relationship between house prices and rents in a market when compared with the cost of investing in housing.
"Prices are in equilibrium when the rent for a house equals the price of the house, multiplied by the cost of holding the asset," said the study.The study found only Toronto had prices in balance with rents.
In Halifax, Montreal, Ottawa, Regina and Winnipeg, prices would need to drop by at least 20 per cent to be in balance, it said.
Prices in Calgary and Vancouver need to drop by seven to 11 per cent to be in equilibrium. In Edmonton, prices are below equilibrium by eight per cent. "Edmonton is very much the outlier; house prices there are out of balance, but are too low," said the report.  An average house priced at $406,500 would need to increase by $32,000, according to the study.
It cites "recent sharp declines in prices" for the undervaluing of Edmonton homes and says potential for price declines is greatest in cities where more houses have been built than can be absorbed and a growing inventory of unsold homes. It says Vancouver is most at risk in this regard.
But it says Canada’s more conservative lending practices have prevented the severe downturn seen in U.S. housing markets. To read the study, click on http://cuer.sauder.ubc.ca/

bmah@thejournal.canwest.com
© The Edmonton Journal 2008
Source:  Http://www.EdmontonJournal.com