The World's Housing Bubble

America has suffered through a housing crisis for the past several years, with the average price falling 30 percent, and much more than that in some areas. So it may come as a surprise to many Americans that much of the world still appears to be in the throes of its own housing bubble. The chart below, from the Global Housing Monitor produced by the International Monetary Fund's Prakash Loungani, offers some perspective.

Housing prices have been falling in about half of the countries, but they're rising on the other half.

The next chart shows housing prices to be exceeding two of their key "anchors" - the housing price to income ratio and the housing price to rent ration - in many of these countries. While housing price to income ratios are below the average levels in America, they are well above in the Netherlands, Belgium, France, Australia, Canada, Spain, the U.K., Norway, Denmark and Sweden. This is even the case for crisis-prone countries like Italy and Greece.

Canada tops the list on the housing price to rent ratio. Housing prices are significantly overvalued on this score (being driven perhaps by the high global demand for housing in Vancouver and to a lesser extent Toronto). The housing price to rent ratio also significantly exceeds its historical norm in Norway, New Zealand, Belgium, Australia, France, Finland, Spain, the U.K., the Netherlands, Denmark, Sweden, Ireland and several other countries.

Lougani notes that these indicators are a "very broad brush" and that there are "myriad country-specific factors that influence house prices." Still he cautions when these two key ratios are "above their historical averages, economic theory suggests that declines in house prices may still be in the offing." 

We know how painful the housing crisis has been in the U.S. With the evolving Euro crisis and continuing global economic instability, it's scary to note that a significant global housing crisis may be in our future.