An era of frothiness is over – After years of dizzying ascents, a big dose of gravity has hit residential-property markets around the world. According to The Economist’s latest round-up, year-on-year prices are now falling in 12 of the 21 countries we track; in five of the other nine, prices are rising at a slower rate than they were a year ago.
Earthbound prices are returning many markets to “fair value”, defined as the long-run average ratio of house prices to disposable income and to rents. Housing is now around or below its fair value in eight countries. But reaching this mark does not mean prices will stop falling.
Property prices in Ireland, at the foot of our table since April 2010, continue to plummet. They have now halved in value, after a fivefold rise between 1995 and their 2007 peak. The pace of decline in Spain, a fellow euro-zone sufferer, quickened in the second quarter. Although prices have already fallen by 23% from their peak, they remain well above fair value and the dire state of the Spanish economy, where a quarter of the workforce is unemployed, suggests that prices will keep diving.