Of 20 global housing markets tracked, the vast majority were overvalued in the third quarter, according to an annual survey from The Economist.
The magazine compared the current ratio of house prices to rents with its historical average to determine a market’s “fair value.” Only four markets were undervalued: Japan (-34.6 percent), Germany (-12.9 percent), Switzerland (-6.4 percent), and the United States (-2.1 percent). The Case-Shiller Home Price Index was used to determine the U.S. figure.
“America’s housing market, almost alone among those which experienced a big bubble, is more or less fairly valued at this point, at least according to price-to-rent ratios. But price rises may not last for long. Earlier gains were driven by substantial reward programs and government subsidies, many of which have now lapsed,” the London-based publication said.
“America’s overhang of housing inventory may get worse if concerns over lenders’ foreclosure processes jam up sales. The temptation for the country’s 11 million underwater borrowers to walk away is another threat.”
Besides the aforementioned four, every other market was overvalued by double-digit percentages. Australia had the most overvalued housing market at 63.2 percent. Italy’s market was the least overvalued at 10.5 percent.
Year-over-year, four markets experienced price decreases: Ireland (-17 percent), Japan (-4 percent), Spain (-3.4 percent), and Italy (-2.8 percent). Thirteen of the 20 markets saw prices rise less than 5 percent. Prices rose the most in Singapore (23.1 percent), Hong Kong (20.6 percent), and Australia (18.4 percent).
Top 10 global overvalued markets:
| Country | % Overvalued | Latest % year-over-year price change |
|---|---|---|
| Australia | 63.2 | 18.4 |
| Hong Kong | 58.1 | 20.6 |
| Spain | 47.6 | -3.4 |
| France | 42.5 | 6 |
| Sweden | 41.5 | 8.9 |
| Britain | 32 | 3 |
| Belgium | 21.6 | 6.5 |
| Canada | 23.9 | 4.5 |
| Netherlands | 23.6 | 4.2 |
| New Zealand | 20.2 | 3.4 |
Source: The Economist.
