In the current The Economist Magazine, the article Hear that hissing sound? [Economist] shows the publication has softened their impression of the housing market over the past 5 years from a collapse to a slow leak. Most experts they spoke with expect a global soft landing.
In reference to the US:
“America’s market has remained hot for longer than most, but even it now seems to be coming off the boil. The 12-month rate of house-price inflation slowed to 12% in the third quarter of 2005, from 14% in the second. Prices of new homes, however, rose by only 1% in the year to October, down from 16% in early 2004. A glut of new building is forcing developers to cut prices. The best signal of a further slowdown to come is the increase in the stock of unsold homes. The number of existing homes on the market was equivalent to 4.9 months’ sales in October, up from 3.8 months’ sales in January.”
In 2004, real estate markets began to deflate in Britain and Australia to a now annualized appreciation rate of 2.4%. “House-price inflation has also eased in France, Spain, Italy and Ireland. However, Japan’s 14-year slide in house prices may at last be nearing an end: prices in central Tokyo are now rising, although the national average is still slipping and is now 40% below its peak in 1991.”
I think the key here and why the Economist has backed away from more severe predictions based on its rent versus sales price ratio is simply:
a higher ratio of house prices to rents may be justified by low interest rates, which make it cheaper to buy a home.