Canada has the Most Overvalued Housing Market in World [Chart]
The Chart of the Week is a weekly feature in Visual Capitalist on Fridays.
In every inflating bubble, there’s usually two camps. The first group points out various metrics suggesting something is inherently unsustainable, while the second reiterates that this time, it is different.
After all, if everyone always agreed on these things, then no one would do the buying to perpetuate the bubble’s expansion. The Canadian housing bubble has been no exception to this, and the war of words is starting to heat up.
On one side of the ring, we have The Economist, that came out last week saying Canada has the most overvalued housing market in the world. After crunching the data in housing markets in 26 nations, The Economist has determined that Canada’s property market is the most overvalued in terms of rent prices (+89%), and the third most overvalued in terms of incomes (+35%). They have mentioned in the past that the market has looked bubbly for some time, but finally Canada is officially at the top of their list.
Of course, The Economist is not the only fighter on this side of the ring.
Just over a month ago, the IMF sounded a fresh alarm on Canada’s housing market by saying that household debt is well above that of other countries. Meanwhile, seven in ten mortgage lenders in Canada have expressed “concerns” that the real estate sector is in a bubble that could burst at any time. Deutsch Bank estimates the market is 63% overvalued and readily offers seven reasons why Canada is in trouble. Even hedge funds are starting to find ways to short the market in anticipation of an upcoming collapse. Canada’s housing situation could give rise to the world’s next Steve Eisman, Eugene Xu, or Greg Lippmann.
On the opposing side of the ring, who will contend that the Canadian housing market is just different this time? Hint: look to the banks and government.
Stephen Harper, Canada’s Prime Minister, has tried to dispel fears. He recently told a business audience in New York that he didn’t anticipate any housing crisis in Canada.
Just this week, the Bank of Canada also tried its best to deflate housing bubble fears. “We don’t believe we’re in a bubble,” says Stephen Poloz, the Bank’s Governor. “Our housing construction has stayed very much in line with our estimates of demographic demand.”
Poloz suggested that housing costs do not necessarily have to contract to match the incomes of Canadians. Instead, he expects growth in the economy to raise wages and make housing more affordable.
Strangely enough, by the Bank of Canada’s own estimate, the housing market is overvalued by as much as 30%. It is hard for housing to become more affordable when prices are rising in double digits in a year. Combine this with the fact that household debt rates keep setting new records, and one side of the fight might get tilted sooner than later.
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has increasingly become more centralized. Here are the big flaws it has, as a result.
The 7 Major Flaws of the Global Financial System
Since the invention of banking, the global financial system has become increasingly centralized.
In the modern system, central banks now control everything from interest rates to the issuance of currency, while government regulators, corporations, and intergovernmental organizations wield unparalleled influence at the top of this crucial food chain.
There is no doubt that this centralization has led to the creation of massive amounts of wealth, especially to those properly connected to the financial system. However, the same centralization has also arguably contributed to many global challenges and risks we face today.
Flaws of the Global Financial System
Today’s infographic comes to us from investment app Abra, and it highlights the seven major flaws of the global financial system, ranging from the lack of basic access to financial services to growing inequality.
1. Billions of people globally remain unbanked
To participate in the global financial sector, whether it is to make a digital payment or manage one’s wealth, one must have access to a bank account. However, 1.7 billion adults worldwide remain unbanked, having zero access to an account with a financial institution or a mobile money provider.
2. Global financial literacy remains low
For people to successfully use financial services and markets, they must have some degree of financial literacy. According to a recent global survey, just 1-in-3 people show an understanding of basic financial concepts, with most of these people living in high income economies.
Without an understanding of key concepts in finance, it makes it difficult for the majority of the population to make the right decisions – and to build wealth.
3. High intermediary costs and slow transactions
Once a person has access to financial services, sending and storing money should be inexpensive and fast.
However, just the opposite is true. Around the globe, the average cost of a remittance is 7.01% in fees per transaction – and when using banks, that rises to 10.53%. Even worse, these transactions can take days at a time, which seems quite unnecessary in today’s digital era.
4. Low trust in financial institutions and governments
The financial sector is the least trusted business sector globally, with only a 57% level of trust according to Edelman. Meanwhile, trust in governments is even lower, with only 40% trusting the U.S. government, and the global country average sitting at 47%.
5. Rising global inequality
In a centralized system, financial markets tend to be dominated by those who are best connected to them.
These are people who have:
- Access to many financial opportunities and asset classes
- Capital to deploy
- Informational advantages
- Access to financial expertise
In fact, according to recent data on global wealth concentration, the top 1% own 47% of all household wealth, while the top 10% hold roughly 85%.
On the other end of the spectrum, the vast majority of people have little to no financial assets to even start building wealth. Not only are many people living paycheck to paycheck – but they also don’t have access to assets that can create wealth, like stocks, bonds, mutual funds, or ETFs.
6. Currency manipulation and censorship
In a centralized system, countries have the power to manipulate and devalue fiat currencies, and this can have a devastating effect on markets and the lives of citizens.
In Venezuela, for example, the government has continually devalued its currency, creating runaway hyperinflation as a result. The last major currency manipulation in 2018 increased the price of a cup of coffee by over 772,400% in six months.
Further, centralized power also gives governments and financial institutions the ability to financially censor citizens, by taking actions such as freezing accounts, denying access to payment systems, removing funds from accounts, and denying the retrieval of funds during bank runs.
7. The build-up of systemic risk
Finally, centralization creates one final and important drawback.
With financial power concentrated with just a select few institutions, such as central banks and “too big too fail” companies, it means that one abject failure can decimate an entire system.
This happened in 2008 as U.S. subprime mortgages turned out to be an Achilles Heel for bank balance sheets, creating a ripple effect throughout the globe. Centralization means all eggs in one basket – and if that basket breaks it can possibly lead to the destruction of wealth on a large scale.
The Future of the Global Financial System?
The risks and drawbacks of centralization to the global financial system are well known, however there has never been much of a real alternative – until now.
With the proliferation of mobile phones and internet access, as well as the development of decentralization technologies like the blockchain, it may be possible to build an entirely new financial system.
But is the world ready?
The World’s Most Valuable Bank Brands
These charts visualize the most valuable bank brands around the world, while also showing the rise of China’s financial services sector over time.
Visualizing The World’s Most Valuable Bank Brands
When most people think about brands, they often picture iconic consumer marks like Coca-Cola or Apple.
But in the realm of financial services, the importance of having a strong consumer brand is also rapidly growing. After all, with hundreds of new fintech entrants positioning themselves to be the “banks” of the future, it seems that brand awareness may be one of the major competitive advantages that incumbent banks can use to protect themselves.
Which financial institutions have the strongest brands, and which brands are the most valuable?
Valuable Bank Brands in 2019
Today’s chart looks at the world’s most valuable bank brands, according to a recent report from Brand Finance.
It should be noted that brand value in this context is a measure of the “value of the trade mark and associated marketing IP within the branded business”. In other words, it’s measuring the value of intangible marketing assets, and not the overall worth of a business itself.
Here are the top bank brands by value in 2019:
For the third year in a row, the Industrial and Commercial Bank of China (ICBC) takes the top spot, with a brand value of $79.8 billion.
Wells Fargo is the top U.S. bank by brand value, coming in 5th place – however, the bank actually fell two spots from last year’s ranking while simultaneously losing 9% of its brand value. This is not surprising in light of the recent publicity challenges faced by the bank.
The Ascent of Chinese Banks
It’s also interesting to note that Chinese banks have taken all four of the top spots on the list, with ICBC, China Construction Bank, Agricultural Bank of China, and Bank of China having a combined brand value of over $250 billion.
Here’s a look at the ascent of Chinese banks over time:
In contrast, in the entire span of 2009-2014, there were zero Chinese banks that cracked the top five.
The Strongest Bank Brands
Finally, here is a look at the strongest bank brands.
It’s worth noting that in contrast to value, these are banks that have executed on their branding, marketing, and sales strategies to have brands that ultimately create a competitive advantage for their business.
Brand Finance measures brand strength by looking at a balanced scorecard of metrics evaluating marketing investment, stakeholder equity, and business performance.
For more insights, don’t forget to check out Brand Finance’s report.
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