Edmonton 29% overvaluedarticle from globeandmail.com

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Canadian housing market: strong but maturing
HEATHER SCOFFIELD

August 11, 2007

  @' G5 k/ e. t0 FWe're not singing the

subprime blues

Subprime, shmubprime.

6 h1 _& ^: ^! y5 ?5 _Canada's housing market is not only shrugging off the subprime woes that are hammering the United States. It's heading in the opposite direction - up.

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# ?% O" J8 P  l, p An exhaustive Merrill Lynch study of housing starts, sales, prices, household incomes, and localized real estate history shows that Canada's real estate market flagged at the end of 2006 and beginning of 2007, but since then has reaccelerated.

  P5 P5 F7 n0 V1 I; C. z"Housing demand remains importantly underpinned by rising household incomes, supported further by the loosening in lending terms that appears to have offset marginal increases in interest rates," writes economist
! f* p4 S5 f' J* [+ F5 f0 S
David Wolf.
$ C: H# A. C; J( [* \- s
as the market matures

The Canadian market is about three years behind the American market, he figures, but it is maturing. A year ago, Canada's market as a whole was judged to be 13.1 per cent undervalued, and now, it is just 3.4 per cent undervalued.
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: X2 x8 m  {; UIn 2006, only one city in Canada - Victoria - had an overvalued housing market. This year, there are five: Edmonton, Victoria, Calgary, Vancouver and Saskatoon.

Even those markets aren't treading anywhere close to

bubble territory. Edmonton is the most overvalued market in the country at 29 per cent above what Merrill Lynch considers
  E, r4 k2 O( W) [5 c, F
  ^6 n1 [  r* D  |' E0 Vnormal market value. But that's a far cry from 121 per cent overvaluation that Calgary peaked at in 1981, or the 66 per cent Toronto saw in 1989, or the 62 per cent of Miami's market last year.

The best housing bargains in Canada, where the houses are the most undervalued, are in Thunder Bay, Ont., and St. John's, the study shows.

why we shouldn't worry
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9 a  ^: W) g. z& z* r. h1 }Canada's housing market is sort of following in the footsteps of the United States, but there are many reasons why the Canadian market won't copy the American implosion, Mr. Wolf argues.

% y" j% A4 m4 p4 {  |6 V( FCanadian lenders and borrowers are experimenting with alternative mortgages but they're far more conservative that their American counterparts and are unlikely to overdo the subprime lending that has undone the American market. Plus, Canada can learn by the U.S. example.