August 20, 2012
In the most recent issue of the Economist, in their article on global house prices, "Searching for Solid Ground," the home markets of 21 countries are assessed by historical longterm averages of rents and income to determine whether their house prices are over or under valued. Four countries -- Ireland, Japan, Germany and the United States -- are determined to have undervalued house prices by both rent and income indicators, 3 more are undervalued by one of these indicators, and the remaining 14 are considered to have over-valued home prices (some by huge percentages: Hong Kong, Canada, Singapore and Belgium by over 50%. Many Western European countries by over 25%). The gist of the article being that many countries still have house prices far about historical fair market values and may be heading for a hard fall. The United States however, after an average price decline of 28% since 2007, is now reckoned to be undervalued by 19% by these same historical parameters of fair value. That is, we've gone through our housing price bubble and adjustment and are poised for recovery.