Report finds international houses overvalued by up to 63%

Homes in Canada are 63% overvalued and the level reaches about 50% in Australia and Norway, Deutsche Bank said in a report yesterday.

Homes in Wollongong, a seaside city in the Australian state of New South Wales, are more expensive than in New York when the median house price is compared to the median household income, wrote economists Torsten Slok, Matthew Luzzetti, and Peter Hooper.

The report compares home values to their historic multiples of rent and household income. Central bankers have been using financial policy to reduce the risk of house-price bubbles in countries including the UK, Hong Kong, and Singapore.

Restrictive policies reduce credit growth and price gains by 1% annually, Goldman Sachs economist Hui Shan estimated last year. Home values in the US are about 5% below their historical average based on the measurement, the Deutsche Bank report said.

In the UK, where the government has encouraged low down-payments on mortgages, they are 38% overvalued. Values in Canada are 35% higher compared with income than the historical average and 91% higher compared with average rentals. Prices in Belgium are 51% higher than the average relative to income.