Global house prices
European house prices are finding it harder to defy gravity
Mar 31st 2012 | WASHINGTON, DC | from the print edition
FROM the late 1990s home prices across the rich world soared relentlessly upward, borne aloft on a gale of cheap capital. In 2006 some overvalued markets began crashing to earth. Until recently, however, the correction seemed remarkably contained. American and Irish home prices plunged, giving up all the gains of the previous decade, but others have fallen far less steeply. Some markets faltered and then stabilised. The latest update of The Economist's global house-price indicators hints that this period of post-crisis calm may be coming to an ...view middle of the document...
Unemployment is rising across the continent and banks are under pressure to shore up balance-sheets (see article). Prices will struggle to rise in such conditions, in over- and undervalued markets alike.
Housing markets have also cooled in far healthier economies. China's government spent much of 2011 reining in its scorching housing sector by limiting multiple home purchases, raising interest rates and hiking banks' reserve requirements. Soaring prices now look a thing of the past: values were essentially flat in the year to the fourth quarter of 2011. A fragile Europe and a cooling China have taken the wind out of other Asian housing markets. Values continue to rise in Singapore but more slowly than in the third quarter of last year. Australian home values fell faster in the fourth quarter than in the third.
America's housing-market correction has gone further than most. On our gauge, prices nationally are 19% below fair value. Economic conditions are improving, and the unemployment rate is down sharply from a year ago. Home sales and construction are depressed relative to normal levels but rose substantially in early 2012 from the prior year. Prices keep falling, however. According to the latest release of the S&P/Case-Shiller index of home prices, home values in large markets were down by 3.8% in the year to January. That was better than a 4.1% drop in December but still horribly disappointing.
Explore and compare global housing data over time with our interactive house-price tool
Better times are in sight. Buying a house looks like an increasingly good bet compared with renting, according to The Economist's calculations. Indeed, rising rents are helping to cut into a backlog of unsold homes; in February, 23% of home sales were to investors, many of whom...