According to an article published in the Economist of May 18th,STOCKMARKETS around the world have been stimulated by ultra-loose monetary policy. The response of property markets—the biggest asset class of all—has varied. Whereas the housing boom before the financial crisis was remarkable for its global reach, the recovery after the bust is uneven.
Among the 18 countries comprised in this article, prices have risen over the past year in 12. The biggest increase has been in Hong Kong, where house prices are up by 24.5%. The biggest faller is Spain, where prices are down by 7.7%.
Prices have forged ahead by 11.1% in South Africa. They have also been buoyant in two big emerging economies included in our compilation for the first time: Brazil (up by 12.8%) and India (10.7%). China’s house prices have increased modestly, by 3.3%.
Housing markets are notoriously prone to boom and bust. To judge whether prices are at sustainable levels we use two criterion. One is the ratio of prices to disposable income per person, a measure of affordability. The other is the price-to-rent ratio, in how many years you recover your investment in a house,if you rent your property.
If these ratios are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.
On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.
Among the 18 countries comprised in this article, prices have risen over the past year in 12. The biggest increase has been in Hong Kong, where house prices are up by 24.5%. The biggest faller is Spain, where prices are down by 7.7%.
Prices have forged ahead by 11.1% in South Africa. They have also been buoyant in two big emerging economies included in our compilation for the first time: Brazil (up by 12.8%) and India (10.7%). China’s house prices have increased modestly, by 3.3%.
Housing markets are notoriously prone to boom and bust. To judge whether prices are at sustainable levels we use two criterion. One is the ratio of prices to disposable income per person, a measure of affordability. The other is the price-to-rent ratio, in how many years you recover your investment in a house,if you rent your property.
If these ratios are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.
On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.
