THE Economist tracks the health of housing in 26 markets around the world, encompassing a population of over 3 billion. Prices are now rising in 19 of these markets at a median pace of 5.2% a year. But in China, whose decade-long construction boom appears to be coming to an end, and in much of the periphery of the euro area, which is just starting to recover from an especially severe bust, prices are falling.
To assess whether house prices are at sustainable levels, we use two yardsticks. One is affordability, measured by the ratio of prices to income per person after tax. The other is the case for investing in housing, based on the ratio of house prices to rents, much as stockmarket investors look at the ratio of equity prices to earnings. If these gauges are higher than their historical averages then property is deemed overvalued; if they are lower, it is undervalued. According to our measure, property is more than 25% overvalued in seven of the markets we track, notably in Australia, Britain and Canada.