[Carl Johnson]

Global house prices

Location, location, location

Aug 29th 2014, 13:32 by J.M.F. and D.H.

Our interactive guide to the world's housing markets
HOUSE prices are going through the roof. They are rising in 18 of the 23 economies that we track. And in eight of them, prices are increasing at a faster pace than three months ago. Yet there are also weak spots, particularly in Europe. Prices in Spain, which had one of the biggest property bubbles before the crisis, are still falling. They have kept declining in France and Italy too. In contrast, housing markets are buoyant in some northern European countries, notably Britain and Sweden, and especially so in their capital cities (see article).

Since some form of recovery was bound to occur after the housing slump, how worrying are the renewed signs of exuberance? To assess whether house prices are at sustainable levels, we use two yardsticks. One is affordability, measured by the ratio of prices to income per person after tax. The other is the case for investing in housing, based on the ratio of house prices to rents, much as stockmarket investors look at the ratio of equity prices to earnings. If these gauges are higher than their historical averages then property is deemed overvalued; if they are lower, it is undervalued.

Based on an average of these measures, houses are at least 25% overvalued in nine countries. Judged by rents, the most glaring examples are in Hong Kong, Canada and New Zealand. The overshoot in these economies and others bears an unhappy resemblance to the situation that prevailed in America at the height of its boom, just before the financial crisis. Explore the data in our interactive chart below (updated on August 27th 2014) and try to spot which bubble might pop next.

Global house prices: Location, location, location | The Economist

Canada and Australia are both commodity-based economies and recipients of Chinese flight capital in the last 5-8 years look pretty dangerous to me. Vancouver real estate is so tied to the continuous inflow of Chinese elites' money. In order to sustain the upward trajectory in home prices more capital have to continuously to be pumped into the city. Anti-corruption drive and a slowing (but potentially much more) Chinese economy will slow that process. If you are bullish on Vancouver, you'd almost have to be a bull on China. Unfortunately, the story in China is showing cracks all over the place (no pun intended), not just economically too.