Wednesday, 27 October 2010
OVERVALUED PROPERTY - EEEISH!!
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!!!!