What exactly is this global real estate froth scale? Well, we’re glad you asked! It’s all about how overvalued a national real estate market appears to be.

The Bank of Nova Scotia took a look at housing markets around the world, tracking inflation-adjusted prices in 12 advanced countries.

They found that, on average, a cycle of rising prices was 12 years, with Italy seeing the shortest cycle (8 years) and Sweden and Ireland seeing the longest (15 years). Canada’s has lasted for 13 years.

In an article in the Globe and Mail, Adrienne  Warren, a Scotiabank economist commented, “Based on cumulative price increases since the start of their respective cycles, the U.S. real estate market appears the least overvalued, with average prices having reverted back to mid-1990s levels.”

Warren noted that Switzerland and Italy do not appear to be significantly overvalued (30 per cent over the cycle) while Sweden and Britain are the most overvalued at between 130 per cent and 150 per cent. That’s pretty frothy!

Where does the economist see Canada amidst all of this froth?

“Canada falls in the middle of the pack, with inflation-adjusted average home prices rising 83 per cent since 1998,” Warren said in the same Globe piece.

“The relatively smaller cumulative price increase compared with some of the frothiest markets reflects in part a later takeoff. Canada’s residential real estate boom started several years after many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and a weak labour market recovery through mid-decade.”

Michael Babad, the Globe columnist behind the froth story, writes that “Canada’s housing market has been cooling, though few see a meltdown in the works.”

It feels like predictions of modest declines to total catastrophe in the Canadian housing market have been done to death. However, it’s an important topic so it’s essential to stay abreast of the situation. Eventually someone will be proven right…

In the meantime, we’ll keep posting insightful economic news (or dull blather, depending on how you see it) for your enjoyment.

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