• As one of the most widely-owned and valuable consumer assets, housing has a special importance to the health of an economy. Housing activity is widely seen as a barometer of confidence. The turnaround in US housing in the last 18 months, and, more recently, the uptick in UK housing activity, have been widely seen as signs that these economies have turned the corner.
  • The last few years demonstrate another characteristic of housing. As a high-value, highly leveraged asset, housing also serves as a barometer of monetary excess and of economic imbalances.
  • So what do the latest data show about housing activity and housing valuations?
  • US house prices fell by almost 34% between their peak in 2006 and early last year, making property highly affordable by long-term yardsticks. Since this low point, they have risen 10%. Nonetheless, The Economist estimates US housing to be undervalued by 21% against incomes, suggesting that prices have some way to go before reaching overvalued territory.
  • UK housing is also showing signs of recovery. But in contrast to the US, property in the UK does not look especially cheap. Although 11% below their levels in late 2007, house prices are, according to The Economist, 11% overvalued against incomes. At £242,000, the price of an average house in the UK is nine times average annual earnings.
  • The European housing market that has most successfully ridden out the financial crisis is Germany's. Germany did not experience the boom in house prices that occurred in southern Europe and the English-speaking world. And while house prices slumped elsewhere, in Germany there have been modest increases since 2007. Having fallen by 18% relative to inflation in the last 30 years, German housing still looks significantly undervalued.
  • The housing bust in the periphery of the euro area has made houses in Ireland and Portugal cheap relative to long-term yardsticks. But in the far larger and economically significant economies of Spain and Italy, housing still looks overvalued. The core of the euro area has problems too. Prices are falling in the Netherlands and France and with valuations well above long-term equilibrium, prices may have further to fall. 
  • Japan has suffered the world's most prolonged housing bust. Since the peak in the Japanese housing market, in 1991, prices have halved, making Japan's housing cheaper, relative to incomes and rents, than anywhere else in the industrialised world.
  • One indicator of potential risk in the housing market is a combination of rising house prices and significant overvaluation. On the Economist's data, Hong Kong, Singapore, Australia, Sweden, Canada and the UK fall into this group.
  • For those with plenty of money, a long-term horizon and an appetite for risk, where does housing appear to offer the best value? OECD data show that the most undervalued markets are Japan, Germany, Ireland, the US, Portugal, the Slovak Republic, Slovenia, Iceland and Switzerland.
  • But before Googling estate agents in Osaka, Cork or Reykjavik, it's worth bearing in mind that housing valuations, like equity valuations, are a very fallible lead indicator of future price movements. Japan's experience provides a cautionary tale in how apparently cheap housing can go on getting cheaper. Meanwhile London housing may not rate as being cheap on conventional yardsticks, but it has risen in value by over 9.0% in the last year.

MARKETS & NEWS

UK's FTSE 100 ended the week down -1.3%, weakened by healthcare equities.

Here are some recent news stories that caught our eye as reflecting key economic themes:

KEY THEMES

  • The latest A-level results revealed that the number of students taking economics has risen 50% since the recession in 2007, the fastest growth in any subject.
  • Lloyds TSB's regional purchasing managers' index for July recorded the fastest business growth in over 12 years, with growth in every region of the UK and the strongest growth in the North West.
  • The eurozone economy grew by 0.3% in Q2 2013, ending its longest contraction since creation in 1999, driven by growth in Germany, France and Portugal
    British retail sales rose in July at their fastest rate in two-and-a-half years, driven by the longest heatwave in more than 15 years.
  • Data from the Office for National Statistics (ONS) showed household energy use in England and Wales fell by 24.7% between 2005 and 2011, due to rising costs and improved household efficiency measures.
  • Norway's market share of salmon exports to China has fallen from 92% in 2010 to 29%, following the October 2010 decision of a Norwegian committee to award the Nobel Peace Prize to Chinese dissident Liu Xiaobo.
  • The numbers of Romanians and Bulgarians working in the UK rose by more than 25% in Q2 2013 compared to the previous quarter.
  • US retailer Walmart reported a second consecutive quarter of falling sales in the US and cut its forecast for global sales growth in 2013.
  • British cigarette firm Imperial Tobacco announced plans to launch its first e-cigarette in 2014
    The number of Chinese millionaires rose by 3% annually in 2012, the slowest rate of growth in 5 years, according to survey data from the independent Hurun Research Institute and consultancy GroupM Knowledge.
  • Cinema chain Cineworld announced a 24% increase in profits in the first half of 2013, with 2m filmgoers having registered for the firm's loyalty scheme after online booking fees were abolished.
  • Fracking company Cuadrilla temporarily suspended operations in the village of Balcombe following protests from anti-shale campaigners.
  • A technical indicator of stock market vulnerability called the "Hindenburg Omen" has appeared 11 times in 50 days recently according to analysts at Sundial Capital Research.
  • Online retailer eBay launched a new service to enable shoppers to provide detailed information about their historical shopping habits to high street retailers when they walk in to a store
    India's food price inflation rate rose to an annualized rate of 9.5% in July, driven by a 34% monthly rise in onion prices, which were hit by excessive rains.
  • French cosmetics firm L'Oreal made a £540m takeover offer for Chinese skincare company Magic Holdings.
  • US home appliances firm Whirlpool agreed to buy a 51% stake in Chinese appliance maker Hefei Sanyo for $552m.
  • A Chinese zoo in the city of Luohe has substituted lions and wolves for Tibetan mastiff dogs and foxes for leopards in an apparent cost-cutting exercise – beasts of burden.

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