Global Housing Bubble – Based on Ratio of Price to Rent, Which Countries are the Bubbliest?
Inquiring minds are wondering where the biggest housing bubble is.
In what should be no surprise, the Economist rates Australia #1, followed by Hong Kong, Spain, Sweden, France, and Great Britain. Supposedly, US home prices are undervalued and Japan (having gone through decades of deflation), the most undervalued.
The Economist made its determination on the basis of price-to-rent.
Please consider Housing Froth and Stagnation.
In recent months several countries have experimented with measures to cool bubbly property markets. Yet since The Economist’s global round-up of housing markets was last published in April, house-price inflation has accelerated in some of the very countries where the authorities have intervened to slow its rise.Asia has been at the forefront of such interventions. In February Singapore’s government raised down-payment requirements and imposed stamp duties on all residential properties sold within a year of purchase in a bid to curb speculation. Despite these steps prices in the island nation rose by nearly 40% in the year to the end of the second quarter, after a rise of just over 25% in the year to the end of the first quarter. Singapore has overtaken Hong Kong to become the frothiest housing market among those we monitor.
House prices in Australia rose by 20% in the year to the end of the first quarter, faster than the 13.5% recorded in the 12 months to late 2009. More concerning, however, is our analysis of “fair value” in housing, which is based on comparing the current ratio of house prices to rents with its long-term average. By this measure Australian property is the most overvalued of any of the 20 countries we track. A frothy property market was one of the reasons for the Reserve Bank of Australia raising interest rates six times between October and May.
In judging Singapore the “frothiest” the Economist is looking at rate of change. I would call Australia the “frothiest” based on valuation.
Spain surprised me because I had assumed the economic implosion might have washed more of its bubble out.
However, my friend Bran, who lives in Spain and emails me nearly every day says “If all the unsold property were released at prices that would move the units, 50% is not far off, and it could be more than that
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