House Prices Worldwide

The Economist on 2 Jan, page 54, gives an interesting report on house prices around the world, how they have moved over the recent past, and to what extent they are over or under valued. The latter is based on comparison between rents and sale prices, on the assumption that "house prices should reflect the expected value of benefits that come from home ownership". Rents earned by investors are equivalent to tenancy costs saved by owner-occupiers.
On that measure, Australian homes are over-valued at 50%, more than anywhere in the world except Spain (55%) and Hong Kong (53%)!
By comparison Britain is at 28% over-valued, and France 40% over-valued. Houses in USA are given as 14% or 3% over-valued, or 3% undervalued, depending on the agency providing the figures. Japan is 33% undervalued!
The report justifies this assessment method as follows. "A housing boom turns into a bubble when prices are driven up by expectation of future price gains. Scarcity of supply or population shifts are often used to rationalise high house prices, but such fundamentals should push up rents too."
So on that basis, given the ongoing immigration flow into Australia, and the land shortage around our capital cities, rents should be going up, rather than house prices coming down! Ray White Beecroft reports a shortage of rental properties that is already leading to increasing rents.
In USA with relatively stable population and lots of land, house prices crashed dramatically and now seem to have reached sensible levels. Spain is likely to see continuing collapse in house prices.