House Prices: The OECD survey

A recent study published by the Organisation for Economic co-operation and Development has outlined the extremes when it comes to the value of residential property.

According to the OECD study, house prices in Britain are around 30 per cent too high with many other commonwealth countries, including New Zealand, Australia and Canada, being amongst the countries with the most overvalued property markets in the world.

There is a noticeable divide in Europe, with countries such as France, Norway and Britain being largely overpriced whereas property markets in Portugal, Germany and Ireland being undervalued.

OECD survey

How the OECD Valuation System Works

The OECD rating system is based on two different measures of valuation. Prices are compared against typical yearly wages and this ratio is then plotted against the long-term average. A rating of 100 would mean that the country’s housing market is in line with that average, whereas a rating of 150 means that it is 50 per cent above that average.

The comparison to wages means that the survey is able to indicate what buyers can afford compared to the national average, but the OECD also shows how prices look against average rental costs. A figure of 62 in the ‘price vs rents’ column means prices are 38 per cent lower than the long-term average of this measure.

Country

Annual rise in real terms

Price vs rents

Price vs wages

Australia

6.6% (2013)145128

Belgium

0.7% (2013)158

147

Canada5.2% (Q1 2014)166

131

France

-2.2% (2013)129128
Germany5.1% (2013)91

83

Greece

-7% (2013)84103

Ireland

4.3pc (2013)9692

Italy

-5.5% (2013)93

108

Japan-1.9% (2013)62

63

Netherlands-1.4% (Q1 2014)104

117

New Zealand

8.2% (2013)170

132

Norway

-2.6% (Q1 2014)164122

Portugal

-1.5% (Q1 2014)8394
Spain-4.9% (2013)104

107

UK3.5% (2013)134

125

US

6.6% (2013)10490
Euro area-0.9%106

107

Total OECD2.8%106

95

Official OECD data acquired from The Telegraph

The OECD’s Assessment of Current House Prices

“House prices and housing investment are now rising in over half of the OECD economies. In Europe, strong house price growth is continuing in Germany (based on data from the big cities) and Switzerland, and has also resumed in the United Kingdom, even though UK prices are already above longer-term norms relative to rents and incomes. Markets remain softer in other parts of the euro area, reflecting weak income growth and tighter financing conditions.

“Recent data, however, suggest that the long declines in real house prices in Ireland and the Netherlands may now have started to bottom out.

“In the United States, housing developments are mixed. Prices continue to rise, but new home sales, starts and builders’ confidence have turned down, in part due to adverse weather conditions in the first quarter of 2014, but also because of a moderation in mortgage purchase applications since long-term mortgage rates rose last summer. Existing home sales have also declined, although much of this appears to reflect a welcome drop in the level of distressed sales. Looking ahead, given the likelihood of continued solid income growth, further easing of credit standards and pent-up demand after a period of subdued household formation rates, the housing market recovery should continue through this year and next.

“In Japan, real house prices are continuing to edge down, but land prices have now begun to stabilise and housing investment has been very buoyant, although this has now faded given the temporary boost provided by the demand for sales contracts to be finalised ahead of the consumption tax increase in April.”

Experts Opinion

Real estate expert, Ron Wilkinson of Alta Vista Property Marbella, tells us that the figures for the UK and the rest of Europe are to be expected and nothing to worry about.

“Whilst the figures for the UK may be shocking to some, they are not entirely representative of the country as a whole.

“The ‘super bubble’ currently around Europe means that the country’s average property price has inflated to a rate that is not representative of cities and towns outside of the capital. For example, if northern cities such as Manchester and Liverpool were regarded as separate entities, they would be more in line with the European average than when London is included.

“This is not to say that prices in London are too high, the UK’s capital has always been a desirable place to live, and that has been reflected in the prices there for decades.

“It is better for houses to be over-priced than under-priced which could result in a shortage of available property and a reluctance to sell”.

All data and statistics obtained from Telegraph and OECD.

Author Bio: Bradley shore is an experienced travel and investment blogger, he has written for a number of clients and written articles all around the world, he is very keen and interested in what he writes about, he likes to influence and help guide people.

Erin Emanuel