With today’s economic climate being full of uncertainty worldwide, many people’s attention has turned to the housing market. Always prone to booms and busts, it invariably sees prices go too high only to be followed by prices hitting rock bottom. Most economic experts use two gauges to decide the status of the housing market.
The first of these evaluates affordability by comparing disposable income to housing prices, while the second compares the costs of renting housing versus buying. Using these two evaluators, if the ratios are higher than the historical averages of the mid-1970’s the property values are overpriced, while if they’re lower they are underpriced. Looking at these indicators today, the American housing market has rebounded quite well from its slump beginning in 2008, while the European market continues to struggle.
American housing prices have risen more than 12% over the past year, and most experts agree the prices are still undervalued when compared to income. However, all may not be perfect in the land of opportunity. Despite having the priciest homes, mortgage rates have seen a sharp increase since May, and with the Federal Reserve apparently wanting to slow the amount of asset purchases the market may be subject to a slight letdown in housing values.
However, while America’s housing market may still be shaky in some aspects, Britain’s is still holding its breath. Housing prices have risen almost 4%, but the prices are still considered a bit too high. A subsidy scheme is providing much-needed help, with funding costs being lowered for mortgage lenders and low-deposit borrowers getting additional help. Yet, Britain’s market looks very good compared to other European housing markets. Irish housing prices recently saw a 49% price crash, while those in Spain had a 30% drop in value since 2008. France has also had housing prices drop by almost 8% in the past year, keeping its market depressed. The bright spot in Europe appears to be Germany, which has seen its prices increase by over 5% in the past year. While this may not sound like a big increase, it’s expected to be enough to help bolster the country’s economic recovery in the euro zone and increase domestic demand for property. So while much improvement has been made in the global housing market, much more is needed before experts can declare victory.