The Most Over/Under-Valued Housing Markets In The World

Tyler Durden's picture


House prices - with respect to both levels and changes - differ widely across OECD countries. As a simple measure of relative rich or cheapness, the OECD calculates if the price-to-rent ratio (a measure of the profitability of owning a house) and the price-to-income ratio (a measure of affordability) are above their long-term averages, house prices are said to be overvalued, and vice-versa. There are clearly some nations that are extremely over-valued and others that are cheap but as SocGen's Albert Edwards notes, it is the UK that stands out as authorities have gone out of their way to prop up house prices - still extremely over-valued (20-30%) - despite being at the epicenter of the global credit bust. Summing up the central bankers anthem, Edwards exclaims: "what makes me genuinely really angry is that burdening our children with more debt to buy ridiculously expensive houses is seen as a solution to the problem of excessively expensive housing."


Using these indicators, OECD countries can be roughly placed into five categories:

Where houses appear broadly correctly valued. This category includes the Unites States, where prices have started rising again after a substantial correction; Italy, where prices are falling rapidly; Austria, where prices are rising; and Iceland, Korea and Luxembourg where prices are roughly flat.


Where houses appear undervalued and prices are still falling. This category includes European countries hit hard by the crisis – Greece, Ireland, Portugal, Slovenia, Slovakia and the Czech Republic – but also Japan.


Where houses appear undervalued but prices are rising. This category includes only Germany and Switzerland, two European countries where strong growth in household disposable income and favourable financing conditions have boosted prices (despite macro-prudential measures in Switzerland).


Where houses appear overvalued but prices are falling. This category is the largest as it includes many European countries where the post-crisis housing market correction is still ongoing, most notably Spain, but also the United Kingdom, Belgium, Denmark, Finland, the Netherlands and one non-European country, Australia. While price corrections in these countries are necessary, they are also concerning as they weaken households’ financial health and potentially fragilize banking sectors.


Where houses appear overvalued but prices are still rising. This is the case in Canada, Norway, New Zealand and, to a lesser extent, Sweden. Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow.


Edwards explains reality:

Why are houses too expensive in the UK?


Too much debt. So what is George Osborne's solution for first time buyers unable to afford housing? Why, arrange for a government guaranteed scheme to burden our young people with even more debt!


Why don't we call this policy by the name it really is, namely the indentured servitude of our young people.

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Tue, 06/04/2013 - 16:49 | 3624541 LawsofPhysics
LawsofPhysics's picture

Very simple explaination.  Overlay with data on unemployement and bank fucking bailouts...

okay, maybe not a clear trend, but a general one.

Tue, 06/04/2013 - 17:03 | 3624562 Sudden Debt
Sudden Debt's picture


Tue, 06/04/2013 - 17:05 | 3624567 FlyingDutchman
FlyingDutchman's picture

Seems a lot of people here in Belgium are still in denial over this.

Tue, 06/04/2013 - 18:08 | 3624703 idea_hamster
idea_hamster's picture

Notice that the price-to-income or affordability ratio in Iceland -- the one place that gave the bankster cabal a boot to the ballsack -- is exactly properly priced.

Thank you, and good night.

Tue, 06/04/2013 - 18:32 | 3624760 Stuck on Zero
Stuck on Zero's picture

Yep.  And if you notice, in general, countries with real income growth are mostly on the left side.


Tue, 06/04/2013 - 20:42 | 3625030 garypaul
garypaul's picture

Exact same story here in Canada

Tue, 06/04/2013 - 18:33 | 3624764 tyler
tyler's picture

Swearing!  The way brilliant men have communicated throughout centuries and a great way to invite those unfamiliar with your view an ear to listen.


Fucking idiots.

Tue, 06/04/2013 - 20:53 | 3625050 swmnguy
swmnguy's picture

Obscenity is the crutch of inarticulate fuckers.

Tue, 06/04/2013 - 19:14 | 3624846 CheapBastard
CheapBastard's picture

How do you say, "Build on your own lot" in British?

Tue, 06/04/2013 - 19:16 | 3624850 SimMaker
SimMaker's picture

I think it goes something like "Get off my land and take your Army with you"........but it's all a bit confusing with the Queen and all.

Tue, 06/04/2013 - 16:49 | 3624543 pragmatic hobo
pragmatic hobo's picture

long term average?

Tue, 06/04/2013 - 18:02 | 3624689 robertocarlos
robertocarlos's picture

There is 300 years of data showing that rents keep pace with incomes.

Tue, 06/04/2013 - 16:52 | 3624548 Urban Redneck
Urban Redneck's picture

If the "undervalued" locations with rising prices are in established and admitted real-estate bubbles - what does that say about the places the OECD views as "overvalued"?

Tue, 06/04/2013 - 17:11 | 3624549 medium giraffe
medium giraffe's picture

Why are houses so expensive in the UK?

It's not debt, it's mass unregulated speculation. House prices have been detached from real income for some time now because of it. Every man + dog has been in on the act.

Now there's a big bubble that's about to go *pop*, but you can't tell anyone here that, they'd think you're mad, or a blasphemer. UK house builders are already feeling the pain though, the truth is there to see.

Going laugh my balls off when it happens.

Tue, 06/04/2013 - 17:13 | 3624592 BigJim
BigJim's picture

Of course it's debt. If interest rates were lower, or if lenders had demanded a higher % deposit against the mortgage, prices wouldn't be anywhere near where they are now.

Tue, 06/04/2013 - 17:41 | 3624642 medium giraffe
medium giraffe's picture

So why has the HPI remained as high as ever, despite an over 50% fall in real interest rates since 2009?

Tue, 06/04/2013 - 18:04 | 3624693 robertocarlos
robertocarlos's picture

Big jim meant if interest rates were higher ie. normal.

Tue, 06/04/2013 - 18:14 | 3624719 medium giraffe
medium giraffe's picture

Oh. Lower = higher. New normal. Gotcha.

Wed, 06/05/2013 - 11:34 | 3626407 BigJim
BigJim's picture

Yes, my bad, I meant to write 'higher', obviously.

*Mutters to self* must proofread posts! must proofread posts! must proofread posts!

Tue, 06/04/2013 - 16:55 | 3624556 sharky2003
sharky2003's picture

Despite Japan appearing to be the most undervalued...there's probably a reason. You couldn't pay me to buy a plot of irradiated land.

Tue, 06/04/2013 - 17:46 | 3624561 medium giraffe
medium giraffe's picture

Hmm... not so sure about Fuku these days, digging this video up was cause for re-assessment. Very interesting, worth some of your time.

(Nuclear Scare Scam: Galen Winsor asks 'who owns the Plutonium and how much is it worth?, and eats some Uranium as an encore!)

Wed, 06/05/2013 - 17:39 | 3627688 medium giraffe
medium giraffe's picture

Yep, well aware of enenews, fukushima-diary, Caldicott, Gunderson (and good stuff on Washington's blog too) etc etc.  I've followed the Indian Point, San Onofre etc news closely too.  I've even wasted some time on the more crazed leftfield stuff (it's the jooooz!). 

I've been following it all since fuku broke, and to be honest, after buying a dosimeter, keeping an eye on radiationnetwork and even discussing with professors and such, I decided to take a bit of a doom-and-gloom vacation.  Then I came across the Galen Winsor lectures, and it's persuasive stuff.  Eating Uranium 308 is a compelling argument, and I can't help thinking "what if, what if, what if".  It's not the first time we've all been hoodwinked so some bottom-feeder can trouser a wodge of cash.

Look, please please please, just watch the vid, you'll see what I mean.  Winsor recently died of natural causes in his 80s.

Tue, 06/04/2013 - 17:06 | 3624573 FecundaGoat
FecundaGoat's picture

I think Japan prices went to the moon in the '90's and have never gone back...."Long Term Average"

How do you say deflation in Japanese?

Tue, 06/04/2013 - 17:42 | 3624645 RichardENixon
RichardENixon's picture

I think it's "defration"

Tue, 06/04/2013 - 19:58 | 3624925 upWising
upWising's picture

How do you say "clusterfuck" in Japanese?


Tue, 06/04/2013 - 17:04 | 3624566 cro_maat
cro_maat's picture

Houses are priced correctly in the U.S.?!! Is this according to REITS, HFs and the Fed who owns a sh*tload of MBS paper? If you asked the average 30 year old looking for their first starter home in the US who is unemployed or underemployed and can't qualify for a mortgage I would bet their answer would be "overpriced".

Tue, 06/04/2013 - 17:08 | 3624580 Buckaroo Banzai
Buckaroo Banzai's picture

You are misinterpreting the graph. It says that US houses are priced correctly relative to the housing markets of the rest of the world.

Of course, if the entire global housing market is fucked up (and it is, of course), then the US market is simply averagely fucked up.


Tue, 06/04/2013 - 17:12 | 3624591 cro_maat
cro_maat's picture

+ 1 I stand corrected sir!

Tue, 06/04/2013 - 19:53 | 3624919 Manipuflation
Manipuflation's picture

Here is more bullshit to consider from the Merican side.  Said property that I am trying to sell has an assessed value that is far greater than fair market value.  Ain't that grand?  No, its actually several grand out of pocket for me.  Any of you "Frost Backs" need a place in NW Wisconsin eh?  You could petition for reassessment after the sale occurs but I am not going to do so now as that would likely lower the fair market value.  These fuckwads really know how to stick it to you, I will give them that.

Tue, 06/04/2013 - 20:00 | 3624933 upWising
upWising's picture

Dude, the gubmint needs the dollahs for important projects.  Every dollah spent wisely.

Do you REALLY love Murika?

Tue, 06/04/2013 - 20:42 | 3625028 FreeNewEnergy
FreeNewEnergy's picture

Sorry, Manipuflation, but you must have your property reassessed in order to save on the taxes. It only makes sense. Your assessment has nothing to do with the fair market value of your home, except in the minds of people who believe in government and you shouldn't be selling to those types, anyhow.

Real estate sells for whatever the market will bear, more or less, so if you think your assessment is too high, lower it and don't worry about the sale price, especially if it's more than you paid. Besides, in order for a buyer to petition for a re-assessment after a sale, the sale price would be used as the assessment price in all likelihood.

Tue, 06/04/2013 - 21:21 | 3625118 Manipuflation
Manipuflation's picture

FreeNewEnergy, you did not read my other posts did you?  Too long, I know.  Their is no mortgage or lien but there sure as hell is a lot of sweat equity and capital improvements that have been done over the years.  At this point, I do not care anymore, I only want out of the scam system that is RE and home ownership.  I am in sales of other tangible goods, not RE, but I know how the scam works here in the Upper Midwest.  Everyone's assessed property value is too high in that particular school district because of the new public school.  You can petition all you want but you will get nowhere fast.  All similar properties that have recently sold have sold for under assessed value in the area.

Please do not assume that I am underwater on the sale price because that would be almost impossible.  I have never purchased ANY real estate, excepting for legal consideration in this case, and likely will never do so.  I can easily be negotiable on price because I am sick of the extra expense for owning something I do not really need or use much but there is no immediate reason for a fire sale either.

Tue, 06/04/2013 - 21:07 | 3625082 swmnguy
swmnguy's picture

"Manipuflation": Not sure what has happened in NW Wis., but here in Minneapolis assessed values are sometimes way out of whack with what houses are selling for, and the government estimate of "fair market value" is absurdly low right now.  I think all their algos got totally distorted 2000-2009 and still haven't de-buggered themselves.  Add in the incentives they have to keep their revenue income up, and you have a mess that isn't likely to get sorted out soon.  Any prospective buyers will get data on comparable sales from their realtor anyway, so I wouldn't worry too much about the "fair market value" if I were you.

My house is tax-assessed at exactly what I paid for it (coincidence?  I think not).  The government "fair market value" is about 10% lower than that.  But houses a couple doors either side of mine have sold recently for 15% more than I paid for mine 3 years ago, and both of them had lower "fair market value" than mine does now (and they're smaller, and one isn't nearly as nice).

BS it is indeed, but I wouldn't sweat it.

Wed, 06/05/2013 - 00:27 | 3625432 Manipuflation
Manipuflation's picture

And here I thought you were from Worthington swmnguy.  I have seen a few of your posts on the Star Tribune site in the past.  +1 for using the same screen name.   We currently live somewhere near St Cloud.  I have lived in many places in MN.  I can assure you that I have the best recipe for Lutefisk ever.  That gun is loaded so be careful.  We used to live in Brooklyn Park where finding a loaded gun in the shrubbery was not as uncommon as it should have been.  I am usually in Plymouth and Maple Grove more than once a week and like the food they have at the Three Squares.  You?

Tue, 06/04/2013 - 17:32 | 3624624 Dr Benway
Dr Benway's picture

"It says that US houses are priced correctly relative to the housing markets of the rest of the world."


No, it says the US is priced correctly relative to its long-term average price-to-rent and price-to-income.

Wed, 06/05/2013 - 11:34 | 3624596 BigJim
BigJim's picture

 If you asked the average 30 year old looking for their first starter home in the US who is unemployed or underemployed and can't qualify for a mortgage 

Why on earth should an unemployed or under-employed person be able to afford a house? It's pretty simple - for one person to consume more than they produce, someone else will have had to produce more than they consume... and the latter should think long and hard before funding the former.

Tue, 06/04/2013 - 17:22 | 3624608 Kirk2NCC1701
Kirk2NCC1701's picture

Pssst, Bernanke, JPM, I can sell you some homes in... Detroit.  Huge potential.  Contact me.  /Serious

Tue, 06/04/2013 - 17:05 | 3624571 Spitzer
Spitzer's picture

Canadians and Australians are worse now then Americans were in 2006. You tell them that house prices wont rise 10% year after year and they will laugh in your face.


Tue, 06/04/2013 - 17:11 | 3624584 SimMaker
SimMaker's picture

Robocop, kind of got Detroits future just right........


Mad Max,..............etc

Tue, 06/04/2013 - 17:29 | 3624620 Bay of Pigs
Bay of Pigs's picture

The Canucks are buying like mad in Maui, Hawaii. Over 90% of new buyers in Kihei are from Canada.

They think it's cheap RE compared to back home. LOL...300-400K is nothing to them.

Tue, 06/04/2013 - 18:51 | 3624809 Spitzer
Spitzer's picture

You wont get much for 300k in Canada. Even worse in Australia



Tue, 06/04/2013 - 19:50 | 3624911 Bear
Bear's picture

300-400,000 in Kihei ... 1 bed/bath 469,000 ... 3-4 gets you nice 2 b/b condo

Tue, 06/04/2013 - 19:35 | 3624885 ForTheWorld
ForTheWorld's picture

Lets say that saying things like this receives some very emotional responses from people who have either a) bought a house a long time ago and are just waiting to sell, or b) people who are just buying now, and will want to realise a gain when they sell it.

People in Australia generally don't consider the effects of ever increasing housing prices on the greater economy, nor do they care that when they go to sell their house and get an even "better", more expensive place (because that's what you do in Australia - you buy poor quality housing for as much as you can because that makes you great apparently), they'll still be behind monetarily, because they'll have lost out on the interest they've paid on their loan, as well as agents commission and all those other things. Their wages won't have increased though.

The stories I could tell you about how misguided some of my friends have been when it comes to housing purchases. They'd blow your mind.

Tue, 06/04/2013 - 17:16 | 3624590 Kirk2NCC1701
Kirk2NCC1701's picture

Where's Don't-Cry-For-Me-Argentina, or Hot-Chile?

Tue, 06/04/2013 - 17:14 | 3624594 azengrcat
azengrcat's picture

And people are wondering why aussies and frost backs are pouring money into US real estate

Tue, 06/04/2013 - 17:16 | 3624597 SimMaker
SimMaker's picture

"Frost Backs"

Tue, 06/04/2013 - 19:14 | 3624845 Big Corked Boots
Big Corked Boots's picture

Outstanding! I've always thought we need a new slur for Canadiens!

I'm going to be using that on my frequent NY Thruway trips.

Tue, 06/04/2013 - 17:19 | 3624603 Kirk2NCC1701
Kirk2NCC1701's picture

Bullish for 60,000 Foreign Workers (to be deported from Israel to unspecified 'foreign country') to buy homes in Germany.

Tue, 06/04/2013 - 17:24 | 3624615 mumbo_jumbo
mumbo_jumbo's picture

price to income ratio in the USA -~11%....are you fucking kidding me right now!!! i made over $100K last year and THERE IS NO WAY I CAN COME CLOSE TO AFFORDING A's not even close!!!  WTF!! is this another US RE propaganda piece!!

i guess i live in a different parallel universe from the author.....REMINDER 50% of Americans earn less than $33K a year x 3.5 = homes should cost $115K

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