Oz tops list of overvalued houses, then HK, Spain, France, Sweden, UK

Australia tops the ranking of countries not to buy a house because of overvaluation on fundamentals according to data compiled by The Economist magazine.

Interestingly after a four year housing recession the USA is now approaching fair value. But Japan is the biggest bargain with a 34.6 per cent discount and then comes Switzerland.

However, what is most noticeable is how overvalued many housing markets remain even after the worst global financial crisis in living memory. That is a function of the emergency low interest rates still in place in most countries.

Oz in danger?

To be fair to Australia its central bank has been raising rates recently, but the rise of commodity prices looks likely to prop property prices up for a while longer. If China went into recession that would be curtains for the Australian house price boom.

Hong Kong’s high property prices are a function of speculation, the link to the US dollar and China. If anything happened in the US bond market to take interest rates higher the Hong Kong real estate bubble would burst.

Spain, France, Sweden and the UK look anomalies that will correct as global interest rates rise back to more normal levels. Low interest rates generally coincide with high house prices and conversely high interest rates mark market bottoms. The risk is therefore loaded to the downside.

Remarkably the global property bubble is not over except in the USA and Switzerland and in Germany and Japan there has never been a bubble.