A recent property market study by the Organisation for Economic Cooperation and Development (OECD) has branded the UK housing market as overvalued. The study, which looked at housing prices in 27 different countries, put the UK in eighth place as one of the world’s most overvalued property markets.
Britain outranked most countries in the study, but was beaten out by Australia and New Zealand, both of which had higher average property price growth. Norway, as well as Belgium, were at the top of the chart, with housing prices overvalued based on average rental income.
The study looked at a variety of factors, including the average housing price over several years and the price to rental earnings ratio of properties. North European countries were overrepresented in the ‘overvalued’ category, while most Central and Southern European countries were either undervalued or valued accurately.
It’s interesting news, particularly when you consider that housing prices continue to creep up in many parts of the country. Analysts believe that a major correction may take place if housing prices fail to scale back to come to parity with income growth and other economic indicators.
Many economics are wary of on-going financial initiatives aimed at increasing home ownership. The Bank of England’s financial policy, built around quantitative easing and low interest rates, has made it easier than ever for buyers with low incomes to purchase homes that, based on historical data, are out of their price range.
Given the events of the last five years, particularly in high-growth housing markets like the United States, Britain’s real estate industry may wish to pay close attention to its growth. Following its own housing bubble in 2006, the United States ranked close to the bottom of the study’s results, alongside Greece and Iceland.
