Let's take a quick look at some house prices measured against disposable incomes from cities across the country from the late 80's.
Here is Vancouver.
Here is Calgary
Here is Saskatoon
Here is Winnipeg
Here is Toronto
Here is Montreal
Here is Ottawa
Las Vegas real estate at the beginning of 2003 was undervalued
Apparently the state's housing market was undervalued in the early part of 2000
South Africa in 2005:
"Why do Analysts believe South African real estate is undervalued?"
Vancouver in 2004:
"We are undervalued for Canada for the level of quality that is standard in our market and we are undervalued in relation to the low-profit margins that Vancouver developers accept."
Richmond BC real estate has always been affordable and undervalued for the most part.
Montreal in 2006
Montreal’s home prices were sorely undervalued through the 1990’s.
Canadian Resort Properties in 2004
"Re/Max says the areas of Banff/Canmore, B.C.'s Okanagan Valley, and properties in Atlantic Canada are of particular interest to American and European purchasers. "Given current property values in prime international recreational destinations such as Cape Cod, Nantucket, the Hamptons, Aspen, and Vail, many of these Canadian markets are undervalued,"
United States Housing Market 2004
Bear Stearns economist David Malpass arguing that the housing market was healthy and that much of the rise in prices simply represented a "catch-up" because they had lagged behind the rise in equity prices since the mid-1990s.
Here is a quote about Saskatchewan.
"The Saskatchewan market was at least 30 to 40 per cent undervalued last year and the market has simply caught up to other areas in Canada," said Harry Janzen, executive officer of the Saskatoon Region Association of Realtors (SRAR).
So in a nutshell, the United States housing markets like California were undervalued to the rise in equity markets in the 90's. But this was nonsense as for example, even when the bubbly equity markets popped in 2001 and San Francisco was in a recession, prices in that city increased by over 10% in the recession year. If common sense had prevailed, the "undervalued theory would have been shot down and house prices would not have advanced. But prices did advance fueled by emotion and credit. When the California cities rose in value, Phoenix and Vegas then undervalued to cities in California, were justified to see house prices launch. The rest of the world saw this and they were undervalued as well and so a huge spike in prices was fine. Vancouver and BC resorts were undervalued to other comparable world cities and world class resorts so its was normal for the rocketing of house values. Then Calgary was undervalued and when prices cranked up higher than was justified by wages it was normal and then Saskatoon was one of the last markets to shake the undervalued status by rocketing up over 50% in just one year. The one common theme in every housing market is that the rise in houses values was not in sync with the rise in incomes ( Saskatoon has experienced house prices rise over 3 times faster than wages over the last 7 years).
By 2007 when Saskatoon was one of the last cities in the world to shake their undervalued status, some of the first cities in the world that launched their house prices had their bubble pop. Then one by one, cities around the world had their housing bubble pop. It really was just an equilibrium of house prices upward and it will be an equilibrium of house prices downward.
Compared to the 2000's, house prices in 1990's were undervalued, but that was because houses were considered places to live in and not really an investment like we come to believe in the last few of years. In the 90's, investors and speculators were feeding the dotcom bubble. After the dotcom bust and the lowering of interest rates, investors, speculators, boomers, young couples turned to real estate as the safe haven the stock market they all felt wasn't. It did not matter if it was Phoenix, Madrid, London, Miami or Saskatoon, cities around the world had house values rise ( some doubled in a few years) without incomes or other fundamentals only supporting a small rise in values.