The 12 Most Overpriced Housing Markets In The World

Australian House 1

Photo: Bronte Capital

Property prices in the U.S. may have fallen 2% in February, but many homeowners around the world are in the midst of a massive housing bubble.Prices continue to be pushed up by the traditional formula: excessive demand, inadequate supply, and easy lending.

The Economist has broken down which markets are most overvalued, by comparing rental prices to sale prices of properties.

We’ve added context on each market by looking at GDP growth, unemployment levels and changes in monetary policy to figure out if a bubble is actually forming in any of these markets.

#12 Denmark

Overvalued by: 17.6%

Year-over-year increase: 2.7%

per cent change, 1997-2011: 98%

Is it a bubble? Average house prices in Denmark were 6.6% higher in 2010 from a year earlier but property growth stopped on faltering economic recovery, according to the Global Property Guide. With prices well below peak levels another bubble seems unlikely.

Source: The Economist

#11 Singapore

Overvalued by: 18.1%

Year-over-year increase: 17.6%

per cent change, 1997-2011: 21%

Is it a bubble? Singapore is one of the few markets that is more overvalued now that it was pre-recession and private home prices rose 17.6% in 2010. The government has passed measures to cool prices four times since 2009, with the latest being implemented in January 2011.

Source: The Economist

#10 Ireland

Overvalued by: 19.9%

Year-over-year increase: -10.8%

per cent change, 1997-2011: 118%

Is it a bubble? Tax hikes and austerity measures are likely to keep Irish property prices low. Rent in Dublin rose in 2010 but was 30% below peak levels and the vacancy rate stands pretty high, according to Global Property Report.

Source: The Economist

#9 New Zealand

Overvalued by: 20.6%

Year-over-year increase: 0.9%

per cent change, 1997-2011: 111%

Is it a bubble? New Zealand house prices are 5.6% below peak prices in 2007 but appear to have stabilised. Prices in Christchurch are expected to drop since the earthquake hit the city.

Source: The Economist

#8 Netherlands

Overvalued by: 20.8%

Year-over-year increase: 1.7%

per cent change, 1997-2011: 90%

Is it a bubble? A drastic reduction in mortgage interest rates pushed property prices higher, according to Global Property Guide. In a country that has a supply lag, encourages home-ownership, and has slumping GDP growth, a correction remains possible.

Source: The Economist

#7 Belgium

Overvalued by: 23.7%

Year-over-year increase: 6%

per cent change, 1997-2011: 164%

Is it a bubble? Belgium's property prices increased 5.5% in 2010 compared with 1.8% in 2009, according to Property Magazine. An expansion of the country's mortgage market and strong economic and wage growth have pushed up prices, but a slowdown in economic growth could hurt the market.

Source: The Economist

#6 Britain

Overvalued by: 29.6%

Year-over-year increase: -1.1%

per cent change, 1997-2011: 178%

Is it a bubble? Property prices in the UK fell 0.9% in February wiping out the 0.8% gain in January according to Reuters. Analysts expect that a lack of confidence in the market has prevented homeowners from putting their properties up for sale, and a low supply of new properties will keep prices from tumbling.

Source: The Economist

#5 Sweden

Overvalued by: 39.5%

Year-over-year increase: 5.2%

per cent change, 1997-2011: 175%

Is it a bubble? Analysts believe that rising property prices and household debt are creating a heady mix that may see the Swedish economy overheat, according to The Financial Times. With unemployment levels set to fall and relatively rapid economic growth, tighter monetary policy could help check prices.

Source: The Economist

#4 Spain

Overvalued by: 43.7%

Year-over-year increase: -3.5%

per cent change, 1997-2011: 157%

Is it a bubble? Spanish home sales seem to be picking up significantly for the first time since the bubble burst in 2008. The government is wooing foreign investors and trying to support banks but speculators think the market hasn't bottomed out yet.

Source: The Economist

#3 France

Overvalued by: 48%

Year-over-year increase: 8.6%

per cent change, 1997-2010: 152%

Is it a bubble? French property prices are surging. The Federation National de L'Immobilier (FNAIM) reports that prices in Paris reached €7,500 per square meter by the end of 2010 and expect it to reach €8,000 per square meter in Q3 2011. With a greater year-on-year increase perhaps its time to reign in prices, in Paris at least.

Source: The Economist

#2 Hong Kong

Overvalued by: 53.7%

Year-over-year increase: 20.1%

per cent change, 1997-2010: -1%

Is it a bubble? Housing prices in Hong Kong have been soaring because of an increasing demand for land and inadequate supply. Mark Williams, economist at Capital Economics tells Forbes that while strong economic growth attracts investors, the currency peg makes tightening monetary policy difficult. With homes costing 11.4 times household income, the market is worrying.

Source: The Economist

#1 Australia

Overvalued by: 56.4%

Year-over-year increase: 5.8%

per cent change, 1997-2010: 215%

Is it a bubble? Low supply of housing, rising disposable income, increasing immigration and an increase in key rates seem to have prevented Australia's property prices from reach bubble status, but the market has divided analysts. Morgan Stanley analyst Gerard Minack tells iStockAnalyst the bubble's been ballooning since the 1990s, while Shane Oliver, economist at AMP Capital Partners, thinks only external causes like the collapse of another sector could trigger a fall in prices.

Source: The Economist

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