Another Top-10 City List — 10 Countries With the Least Overvalued Housing Markets of the 20 Analyzed by Deutsche Bank

Earlier this week I wrote about the 10 most over-valued housing markets among developed countries and why that can happen. http://blog.stewart.com/stewart/2013/12/17/another-top-10-list-and-you-may-not-want-to-be-on-this-one-unless-you-bought-early-the-most-overvalued-residential-markets-by-country/ Several emailed back and asked about how the U.S. compares.

To refresh you, The Duetsche Bank (DB) researchers compared home prices to income and home prices to rent. Each of these two metrics (how much greater prices to rent and prices to income were currently based on historical norms), were then averaged.

In the same study of 20 developed countries, the most undervalued 10 housing markets were as follows:

12-19-13 graph

Does this study make you want to run out and buy some housing in Japan? Get some added information before boarding a flight to Narita International Airport. Japan, just as many other countries, has some restrictions on foreign investment. It also is forecast to have the largest single population decline in the world in the 10 years from 2013 to 2023, shrinking by 2.95 million people – a reduction of 2.3 percent. See a previous blog on world population projections at http://blog.stewart.com/stewart/2013/11/25/forecast-world-population-change-a-very-diverse-landscape/

My comments in the prior blog included:
Would I stake my career as economist on these numbers to become realities? No. There are too many other factors to be considered.

Would I use these data as a comparison of how much homes cost on a relative basis when comparing one country to another? Yes. It’s hard not to recognize home price, income and rent as some of the key determinants in supply and effective demand.

Other factors integral to further insight includes job formation rates, demographics, immigration, available alternative investments, interest rates, household formation rates, wealth formation, tax incentives, and the ability for foreign nationals to purchase real estate, just to mention a few.

What did make an impression on me was the indication that U.S. housing markets were undervalued by just 6 percent from the historical norm. If that is true, and that the market trends towards that norm, then housing values 12-months from now would increase from the current $193,000 to $205,300. Maybe by luck alone, my existing home forecast for 2014 calls for a 5 to 7 percent increase in home values. See my November 26th 2013 blog at http://blog.stewart.com/stewart/2013/11/26/october-2013-existing-home-sales-up-6-percent-versus-october-2012-median-price-of-199500-up-12-8-percent/

Wow. U.S. housing markets may actually be approaching the new normal. And that is good news as boom and bust, both four-letter words, are not sustainable. Normal can extend for longer periods.

Ted

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