Trader’s Narrative has two excellent charts showing just how overpriced real estate remains on a global basis:

Median Home Price to Median Income Ratio

Purchase Price to Rent Ratio

Source:
Global Real Estate Ratios Show Extent Of Bubble
Trader’s Narrative November 13th, 2008

http://www.tradersnarrative.com/global-real-estate-ratios-show-extent-of-bubble-2066.html

Category: Data Analysis, Markets, Real Estate

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

16 Responses to “Global Real Estate Ratios”

  1. DL says:

    The Japanese experience shows just how long the bear market in real estate can last. Especially if the government keeps raising the national debt in a futile attempt to delay the inevitable price decline.

  2. R. Timm says:

    This graph is normalized with 100 as the long term average. Note that the US is not very far above 100 in the price/income graph for the year 2007. We all know that in 2008 prices declined substantially so from this metric we could be at fair value already. The price/rent methodology shows the US more overvalued but I would image rents are more variable than median income. Rents could easily be depressed due to a glut of housing stock given the copious overbuilding over the last 5 years.

    In some of the countries like Spain it would be worthwhile to note the homeownership rate. If 85% of Spain’s population are homeowners then the price/rent ratio has less value as the rental market is small and may not represent the value of the housing stock as a whole.

    The effect of a country’s income inequality should also be considered when looking at the price/rent ratio or price/income ratio. In countries with a great deal of inequality housing prices would be expected to be higher in relation to median income or rents as homeownership is concentrated in upper income demographics. Instead of simply using median income it would be interesting to see the ratio based on different income quartiles over time.

  3. jmborchers says:

    Although the chart doesn’t show it I can tell you from frequent visits to Korea that real estate there has bubbled as well. The real estate problem is worldwide. I would imagine the chinese real estate bubble is even bigger.

  4. Mike in Nola says:

    I’d also like to see some measures of the ratio of debt to equity in the houses. I don’t know, but I can imagine some circumstances where houses are relatively expensive due to various factors, e.g. building codes and restrictions, but the owners don’t go so deeply into debt. Could be larger down payment or income requirements. I doubt that Ireland, the UK and Spain are examples. But, I remember someone from the Canadian government talking about stricter lending requirements there.

  5. Paul S says:

    Factor in the negative personal savings rate and you’ll get a better picture of where the US stands.

  6. DL says:

    Paul S @ 4:27

    “Factor in the negative personal savings rate and you’ll get a better picture of where the US stands”

    A year ago it would have made sense to challenge that assertion by pointing out that the official savings rate doesn’t include increases in asset values due to capital gains. Now, however, that argument is not quite so compelling.

  7. dogjawbull says:

    Yikes and double yikes. Duck and cover. This data just confirms that we have a couple years minimum of some seriously ugly stuff ahead. I picked a helluva day to quit smoking crack….

    Scott in Chicago

  8. scorpio says:

    can u do the same chart except median income vs SPY?

  9. jimcos42 says:

    Is Japan the outlier, or are they just that much farther along then the rest of us?

  10. leftback says:

    can u do the same chart for Greenwich? ;-]

  11. dogjawbull says:

    OK, fine. Can you do the same chart for my alimonies and child support?

    Scott in Chicago

  12. leftback says:

    Here is a dose of unreality for everyone.

    http://www.marketwatch.com/news/story/Shine-might-wearing-off-Manhattan/story.aspx?guid=%7B179BF410%2D84D2%2D48D2%2D9B7A%2D2D7DDD1F7174%7D

    I like the bit where Dolly Lenz says “everyone in the world wants an apartment in New York City..”

    Yes, but they don’t want to buy apartment 1F for $1 million, especially when it has a lovely view of the rats patronizing the trash cans, the dingy interior courtyard and Mr Friedman in his underwear making coffee at 6.45am, (yes, and this is on Central Park West).

  13. Interesting tables on rental yields, etc. for countries around the globe on the following site:

    http://www.globalpropertyguide.com/investment-rating

  14. Blackhalo says:

    When looking at these charts, I can not help but think, “is Japan par?”

    What happens if/when Europe, or the US reach near zero population growth?

    Who is gong to buy the 1 Million dollar McMansions from the retiring baby boomers? A coworker of mine spends 600$ a month to AC his in the summer. That is what I pay in RENT! What is he going to do with that place when energy expenses get out of hand again? Needless to say, he is underwater, but can afford it.

    I guess I can see why Bush and the Democratic congress were such big fans of amnesty for illegal immigration.

  15. Mike in Nola says:

    Re: Price to Rent ratio

    Does this ratio take into account things like insurance, taxes and upkeep on an owned residence? These are significant costs of home ownership, esp. insurance on the Gulf Coast and taxes in some areas. All these things are built into rent.

  16. Downtown Vancouver Realtor says:

    Great graphs.

    My only question is did they use a national median for income and house prices or did they use median income and median for each sub-national jurisdiction and then take a median of that?

    The reason I ask is that i am arealtor in Downtown Vancouver and housing markets and regional economies across Canada are VERY different. For example the economy of Alberta is totally different from the economy of Quebec as is their median incomes and house prices.

    Quebec has been losing population and economic vitality in relation to its neighbours for a 100 years and Alberta has had consistently the highest population growth and economic growth numbers in Canada and at times North America for decades.

    Comments?