The global housing boom that has propped up the world economy in the face of falling share markets in the past few years is teetering on the edge of a crash, The Economist has concluded after a series of surveys.
Pam Woodall, economics editor of the authoritative British weekly, told Reuters the global housing surveys and sector research were conducted over the past year.
"House prices look seriously overvalued in Australia, Ireland, Netherlands, Spain, the UK and U.S. and will fall by at least 20 percent in many economies over the next four years," Woodall told a conference organised by fund benchmarker the Investment Property Databank (IPD) late on Tuesday.
The trigger for a house price crash could be a relatively modest uptick in interest rates as total levels of household debt are at record highs fuelled by borrowing and housing equity withdrawal on the back of historically low rates.
Woodall said it was a fallacy to assume rate hikes on the scale of the late 1980s would be required to hit house prices as the major indicator for the residential market -- the ratio of house prices to average income, is at record highs in the United States, Australia and Britain.
The real level of interest rates is also not that low because inflation is so subdued and this could prolong any recovery in housing markets as in previous cyclical downturns wage inflation has helped to restore equilibrium.
Woodall said The Economist had calculated it would take four years for house prices to return to their long-term equilibrium if they fell by 10 percent in the United States and 25 percent in Britain and Spain.
The United States in particular had seen the biggest rise in house prices in its history since the mid-1990s and a sharp fall in the market in the largest global economy would tip the world into recession.
"The U.S. has very little fiscal or monetary ammunition left to support its economy if house prices collapse. If the U.S. falls it would be the first global property bust in history."
Woodall said property is the biggest business in the world, accounting for 15 percent of global gross domestic product, with assets of $50 trillion compared with $30 trillion in shares.
So swings in house prices have a much bigger impact on economies, through consumer sentiment and demand, than fluctuations in stock markets.
Another key residential market indicator, the ratio of house prices to rents, is at record highs in the Anglo-Saxon economies as rents have risen much more slowly than prices and in some cases are falling.
The situation in the rental sector also gave the lie to a common assumption for the housing market prices that a fixed supply of land and a rising population meant prices would always rise, she added.
"If this is true wouldn't you expects rents to rise as well?" Woodall said.
A potential trigger for a housing crash in Britain could be sales from the booming investment "buy-to-let" market which reached 27 billion pounds at the end of 2003.
Woodall said in many cases rental income is now insufficient to cover mortgage payments and the expectation of compensatory capital gain increases is diminishing with house prices in some parts of the major London market already falling.