An article from the latest issue of the The Economist details how 4 years after house prices peaked in much of the world, housing remains over-valued when compared to its long-run relationship with housing rents and income per person.
The article states:
Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark.
But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued…
The Economist tracks 2 measures:
- Price-to-income ratio
- Price-to-rent ratio
If both of these measures are well above their long-term average, which they have calculated since 1975 for most countries, this could signal that property is overvalued.
Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble.
To read the entire article, click here
To compare global housing data over time with their interactive house-price tool, click here