As Britain discusses whether the country is about to hit another house price bubble, experts have compiled data looking at some of the world’s leading property markets and whether they are overvalued.
Working on the basis that housing markets rotate through a boom-or-bust cycle, statisticians at The Economist magazine appraised 18 markets.
Two indicators were applied to measuring if prices are over or under valued –
- Affordability – Disposable income and home prices are compared
- Rent comparison – Looking at rents and home prices
The aim is to see if these ratios are higher than historical averages dating to the 1970s. If the ratios are higher, the property is overvalued, while if the ratio is lower, the prices are undervalued.
If the market comes back as overvalued, homeowners and investors are rising a boom and could expect to see an imminent fall in prices.
Financial first aid
According to the data, the US housing market rebound is not a bubble as although values have risen 12.1% in the past year, they are still lagging income increases.
The table also shows Japan’s prices are stagnating, while Britain is seeing prices rise towards credit crisis levels on the back of subsidies through government funding schemes.
The effect of these schemes is to inflate the income of home buyers to aid them with raising a deposit and a mortgage that they could not otherwise afford without financial first aid.
European Union countries facing economic woes fared among the worst in the world for house prices – with Italy, Spain and the Netherlands showing big falls in prices. Ireland suffered least well, with a price drop of just under 50% since the first three months of 2008.
House price bubble indicator
|
Latest % change: |
Under or overvalued against: |
|||
|
Past 12 months |
Since Q1 2008 |
Rents |
Income |
|
| Hong Kong |
18.4 |
90.9 |
84 |
– |
| USA |
12.1 |
-8.2 |
2 |
-12 |
| India |
11.9 |
– |
– |
– |
| Brazil |
11.8 |
– |
– |
– |
| South Africa |
9.8 |
19.4 |
– |
3 |
| New Zealand |
7.2 |
6.0 |
68 |
24 |
| China |
6.5 |
20.9 |
8 |
-36 |
| Germany |
5.1 |
20.5 |
-15 |
-18 |
| Australia |
5.1 |
14.1 |
46 |
24 |
| Britain |
3.9 |
-6.7 |
20 |
14 |
| Sweden |
3.0 |
10.6 |
32 |
19 |
| Ireland |
2.3 |
-49.0 |
-6 |
-8 |
| Canada |
1.9 |
20.0 |
74 |
30 |
| France |
-1.5 |
0.7 |
36 |
31 |
| Japan |
-2.2 |
-14.9 |
-37 |
-37 |
| Italy |
-5.7 |
-10.9 |
2 |
11 |
| Spain |
-8.2 |
-30.3 |
12 |
12 |
| Netherlands |
-8.5 |
-19.0 |
6 |
21 |
Source: The Economist
