More on House Prices
In last week’s post on Canadian and international housing, I suggested shorting the C$ on the potential fall in our home prices. Turns out this is not such a bad idea if one believes Deutsche Bank’s macro strategist Alan Ruskin.
In a recent research report, he suggests the global housing cycle is turning USD bullish. Using OECD data, Ruskin plots house prices to rent and income ratios through 2011. Not surprisingly, Canada, Australia and many European countries appear to be very expensive relative to the U.S.
Of particular interest, Canadian house price ratios are “trading at over 50% above the U.S. equivalent numbers, in record relative overvalued terrain.”
He feels that while we are not yet at the decisive turn in Canadian housing, once a downturn is in place the inability to further lower interest rates will curb the central bank’s ability to stem the slide. The U.S. housing bubble burst several years ago and so the Americans are well ahead of other markets in terms of deleveraging – as McKinsey and others have already noted. It appears that Canada, Australia and many parts of Europe remain at considerable risk.
Deutsche Bank, June 26, 2012, FX Daily, Housing and currencies – the big cycle, Alan Ruskin.