Wednesday, 27 October 2010

OVERVALUED PROPERTY - EEEISH!!

 Well those that know have compiled some interesting analysis on 20 housing markets across the globe.  So who is taking the risk!!!


The data not only looks at house price trends but also compares current prices to their “fair value” which is calculated by looking at the historical average ratio of house prices to rents.

Europe’s most over-valued housing market is Spain (+47.6), followed by France (+42.5%), Sweden (+41.5%) and the UK (+32%).  Germany and Switzerland are the cheapest markets on -12.9% and -6.4% respectively.

Globally, the most expensive market is Hong Kong (+58%), followed by Australia (+63%).

Interestingly the US is around “fair value” at -2.1% or so they say.

And South Africa - that's a good question.  Prices In Cape Town are ridiculously high, JHB and Pretoria and Durban all seem kind of normal...but watch this space!!!

The figures suggest that painful housing market corrections will eventually surface in many markets across the globe.


However, there is quite a bit of evidence to suggest that housing is different to other asset markets because is it more correlated with affordability (a function of real incomes and home loan rates) rather than rents.

Unfortunately this argument still suggests that painful corrections may be on the horizon.

The UK and US seem intent on printing money to “support” their housing markets which will surely cause inflation and therefore interest rates to rise which will undermine affordability.

For countries like Spain within the Euro area, printing money is not an option. If you believe the data, (which comes from asking prices rather than sale prices) house prices still have a long way to fall.

South Africa, seems hell bent on controlling interest rates, inflation and exchange control, against a wall of protest and sensibility.

In the medium term, the only options would seem to be significant nominal falls in house prices or a currency devaluation (euro crisis).

Optimists will argue that housing markets will not correct because “it is different this time” as long term interest rates are permanently lower and the dynamics of supply and demand have changed (rising population etc).

Nobody can predict the future but almost everyone who has ever argued "it is different this time" when defending an asset price bubble has turned out to be wrong.

Expect a rocky road ahead.  Look what Standard Bank has just done, staff wise!! Whose next!!!!

6 comments:

Commercial Property Value said...

It is great to read some of the information and feedback, here. I hope to read more ideas in the future!!!

Anonymous said...

Sure, Cape Town Propertie might be overprised, but if you look hard enough you might find a sea and mountain view apartment for under R950 000.

nerissa22 said...

i want make a south africa house...your blog give me good information...Thanks a lot for this information...

Anonymous said...

properties in cape Town are ridiculous r 950,000 for a 1 bedroom hole, cmon get with it you can get the same anywhere else in the country for at least r 250,00 less and without that miserable weather and the miserable wind and of course the miserable self absorbed people man, there is so much more. I lived there for 9 years and man the best part of the city was the N1 out of there
Dave

WizardMan said...

To Anonymous,

That's the funniest comments I've read in years! haha...

But I agree, Cape Town is way over priced and totally rediculous right now.

Move to Pretoria, people are VERKRAMPED here. It's a totaly breath of fresh air :)

Yarrawonga real estate said...

great post here, it's always good reading blogs when the person writing actually knows what they are talking about.

It is quite shocking and intersting at the same time to see those numbers laid out.