Global house prices

07/06/2016

 AN ENGLISHMAN’S home is his castle. Those castles, however, are among the smallest in the rich world: the average house size in Britain is just 86 square metres (925 square feet), around 40% smaller than the average American home.


   This fact has not dampened Britain's appetite for housing. As our interactive chart above demonstrates, between 2000 and 2006, British and American house prices were on a similar trajectory, rising by around 80%.

   While the roof subsequently fell in on the American housing market, British house prices continued to accelerate upwards, after a brief blip in 2008-09.

   As our print article this week explains, much of this rise has been driven by the attractiveness of London as one of the pre-eminent world cities. House prices in London, as well as in San Francisco, Vancouver and Stockholm have risen by an average of 13% a year over the past three years, while national prices have risen by 7.5%.

   That is pushing affordability to its limits: between 2002 and 2012 the typical London home sold for seven times the city’s average annual salary. That figure has since risen to 12 times. 

   To determine whether homes are fairly valued The Economist looks at the relationship between prices and disposable income—an indicator of affordability—and between prices and rents—a substitute for buying a home.

   If rising prices move these ratios above their long-run averages, then either incomes or rents are likely to rise, or house prices to fall. Across America house prices, after falling by 25% from their peak between 2007 and 2012, are now at fair value compared with rents and incomes.

   But thanks largely to their big cities, housing appears to be more than 40% overvalued in Australia, Britain and Canada, according to the average of our two measures.

 

 

Reference: http://www.economist.com/blogs/dailychart/2011/11/global-house-prices

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