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A pair of reports released Tuesday morning suggest potential trouble ahead for the Canadian housing market.

As Tara Perkins reports, Fitch Ratings estimates that home prices in Canada are now about 21 per cent too high.

Canadian home prices versus sustainable rate

Based on Fitch's model for sustainable growth (represented by the dark blue line above), home price growth has been "broad-based and rapid, and faster than that of fundamental drivers of prices."

However, Fitch suggests that low unemployment, rising incomes and government awareness and policies are helping to decrease the chances of a serious downturn.

The cost of renting versus owning

A new OECD study also suggests that, historically speaking, the cost of owning a house remains high versus renting.

The report warns of potential trouble in Canada’s real estate market, saying that “residential investment is likely to weaken since the housing stock seems greater than underlying demand.”

“There is also a risk of a disorderly correction in the housing market, in the context of a high level of household debt,” the OECD said.

“Such a correction would depress consumption and residential construction and in an extreme case could threaten financial stability.”

With reports from Tara Perkins and Michael Babad. SOURCES: Teranet; CREA; Fitch; OECD

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