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How overvalued are Swedish houses?

Sunday, April 01, 2012
The story that Swedish houses are over valued is not new but the question rests on how are the Swedish homes overvalued.

Comparatively, the situation of real estate valuation is much bubblier in many other markets. In the U.S., for example, prices have dropped too much.  And in other markets such as the UK large regional disparity of house prices could be seen.

In Sweden, despite a fall of 2.8 percent in the value of Swedish houses in the past year, the Swedish housing prices still remains too high relative to incomes and rents. Houses here have been accounted to over valued some 29 percent, according to the magazine The Economist's quarterly survey of housing prices in some twenty countries.

Worst of all is Singapore and Hong Kong. It will cost flats 60 and 58 percent too much, according to The Economist. Not long after this is Belgium with 58 percent and Canada with 54 percent.

The Economist's method is based on a comparison of the ratio between the cost of buying and renting property and the ratio of purchase prices and household disposable income with historical averages for each ratio. The intersection of the differences with the historical averages fall then look like over-or under-valuation.

Since rents are regulated in Sweden the ratio of purchase prices and rents is a less reliable measure. But seen only in relation to income the newspaper will still conclude that the over valuation in Sweden amounts to 23 percent.

In the U.S., by contrast, homes are undervalued by 12 percent in relation to rents and by 25 percent in relation to incomes. The cut is 19 percent. Even the German homes are undervalued by 19 percent. Most underrated is housing in Japan, which costs 35 percent less than they should in relation to rents and disposable income.
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