We recently analyzed housing markets across the globe and in this article we will reveal the most overpriced market in the world. Check out our free report on the 20 Most Overpriced Housing Markets in the World.
How Do We Sense an Overpriced Housing Market?
An overpriced housing market is one where buyers tend to pay more than the expected prevailing price. This difference between the expected home value and average listing price in an overpriced market is the premium buyers have to pay. This implies that the average property is selling above its historical implied price. Since buyers have to pay more to buy a median-priced home, higher prices push many of them out of the market simply because they are unable to afford them. Therefore, an overpriced housing market depicts lower affordability for homebuyers which is often represented by the house price to income ratio which in turn tells us how wages have been able to keep up with the home prices. A higher house price-to-income ratio indicates a severely unaffordable housing market where homes are less accessible to residents. Simultaneously, a lower house price-to-income ratio means a relatively affordable housing market. Some of the affordable and promising cities to buy real estate in 2024 have been previously covered.
Real Estate Price Corrections Since the Pandemic
An important indicator of an overpriced housing market is that the homes in such a market will undergo a price correction in the near future. This is when home prices have escalated so much that the market can’t sustain them for long. A UBS analysis of 25 global cities reveals that annual nominal price growth in these cities is at a standstill after undergoing a rise of 10% during the pandemic. Let’s analyze some of the major price corrections across the globe. Home prices were reported to have doubled between 2012 and 2022 in the German cities of Frankfurt and Munich. These are the markets where house prices grew rapidly due to factors including decreasing mortgage rates, strong investment demand, and supply shortages. Although the prices have corrected in Frankfurt and Munich, the cities’ housing markets are still overvalued. Similarly, Vancouver and Toronto saw their real home prices more than triple between 2000 and 2022. Price levels in these cities have undergone a correction of more than 10% in inflation-adjusted terms since mid-2022.
On the other hand, persistent issues such as a sharp increase in mortgage rates, shortage of for-sale inventory, and reduced housing affordability restricted a true price correction in the United States. The relationship between this home price growth and income growth is important to understand in this regard. In a market where houses are overpriced, growth in house prices outpaces the growth in incomes. The United States experienced a transition during the pandemic, from denser urban neighborhoods to larger homes in suburban areas in various housing markets which drove the home prices up. This unprecedented home price growth was reported to be four times the income growth. You can also take a look at some of the most overpriced housing markets in America. The decoupling between house prices and incomes can be witnessed in other major global cities such as Tokyo, Paris, Tel Aviv, and London which require 10 times the annual income to purchase a 60 square meter flat.
If you are looking to invest in global real estate, you can view our discussion regarding some of the best countries to buy real estate according to Reddit. Now that we have understood the concept of overpriced housing markets and some of their relevant characteristics, let’s find out the most overpriced housing market in the world.
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Our Methodology
In order to compile a list of the most overpriced housing markets in the world, we have sourced data from the Demographia International Housing Affordability Report 2023. This report gives us the median multiple which is a price-to-income ratio, the median house price divided by the gross median household income (pre-tax). Since we have already established the relationship between an overpriced housing market and housing affordability in the discussion above, all the severely unaffordable markets have been ranked in order of descending affordability to depict an overpriced housing market. Please note that the Demographia report uses the median multiple to gauge the housing affordability and all markets with a median multiple of 5.1 and above are rated as severely unaffordable. Hence, all markets on our list are so overpriced that their median multiples are above 5.1.
In addition to housing affordability, we have also incorporated the respective median home prices for the markets ranked on our list. This data has been taken from national real estate sources and has been cited as of the latest reference periods.
The Most Overpriced Housing Market in the World
1. Hong Kong
Median Multiple: 18.8
Average Home Price: $1,250,000
Hong Kong is the most overpriced housing market in the world with a median multiple of 18.8. Real house prices in Hong Kong increased fourfold between 2003 and 2018. Inflation-adjusted house prices in the city witnessed a decline of 7% between mid-2022 and mid-2023. An analysis of the local housing market reveals that the housing crisis is rather deep-rooted. The city saw a real estate hegemony in the early 2000s with a concentration of wealth among some property tycoon families. The government suspended subsidized housing and regular land auctions which made the property prices recover. However, the suspension of subsidized housing under the Home Ownership Scheme moved the market from private to public. Continuous surge in prices in the private market made the dream of home ownership in Hong Kong a lost case. Shortage of public housing remains an issue while the average waiting time for public housing allotment was as high as 6.1 years in March 2022. As of now, the city’s housing market is so unaffordable that a skilled service worker has to dedicate more than 20 times the average annual income to purchase a 60-square-meter flat. Additionally, the current median home price is $1.25 million.
To learn more about housing markets that are overpriced and have median home values above $500,000, check out our free report on the 20 Most Overpriced Housing Markets in the World.
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Disclosure: None.
Disclosure: None. This article is originally published on Insider Monkey.