Tag: overvalued

22 April 2015 – El Confidencial

Five years ago, housing in Spain was overvalued by more than 50% and every year since then, the Economist has considered that house prices still need to decrease further.

House prices in Spain have decreased by between 30% and 50% – the range varies depending on the source consulted and the type of assets being considered. According to the statistics and the experts, this decrease has now come to an end. But, what if prices are still inflated?

That is what the weekly British publication The Economist thinks; and it has been warning against the overvaluation of house prices in our country for the last five years. The publication says that house (prices) in Spain are still inflated by between 8% and 18%. By almost 10% on the basis of the net income of citizens and by almost 20% if we take into account the relationship between the price of house sales and rentals. This overvaluation comes despite the fact that the publication calculates that prices have decreased by 31.3% since the peaks recorded in the fourth quarter of 2007.

In 2010, The Economist created an index that was based, precisely, on the relationship between the sales price of properties and rental, and the net income of citizens in different countries to calculate reasonable house prices. Then, homes in Spain were overvalued by more than 50% and in every year since then, the publication has considered that house prices still need to decrease further.

Having said that, our country is not unique in this sense. Not surprisingly, homes are much more overvalued with respect to the average earnings of their citizens in countries such as Canada (by between 35% and 89%), France (25%-29%), Belgium (50%-55%) and Australia (39%-61%).

However, the data from The Economist reflects that if any further decrease takes place, then it will come in dribs and drabs – prices (in Spain) have decreased by just 0.2% in the last year, the smallest decline recorded in any of the countries analysed, and below those registered in Greece (6.1%), China (-5.6%), Singapore (-3.9%), Italy (-3.8%) and France (-2.1%).

By contrast, Ireland, a country that had a very similar real estate bubble to that experienced in Spain and where prices have decreased by almost 40% from their peak levels, heads up the ranking for highest price increases with a 16.2% year-on-year rise, followed by Turkey (16%) and Hong Kong (11.9%).

Original story: El Confidencial (by Elena Sanz). Refer to original story for table showing ‘The Economist House Price Indicators’ by country.

Translation: Carmel Drake