In order to gauge such risk, we have developed a simple model using unemployment, disposable income and mortgage rates to determine whether the housing sector in a given country is over- or under-valuated compared to fundamentals. We see mild overvaluation of global house prices in the order of 4% on average globally. We identify three groups of countries:

• Overvalued: Singapore (13%), the U.S. (6%) and Spain (5%). Overvaluation in Singapore is close to historic highs and this therefore implies a risk of correction. In the U.S., overvaluation is much below the historic high of 26% (2006) and so we perceive much lower risk in comparison to that period.
• Fairly valued: Canada, Hong Kong. These markets have corrected recently as result of regulations (Canada) or a challenging economic environment (Hong Kong).
• Undervalued: The UK (7%) Australia (3%), Brazil (6%) and China (15%). The UK has swung into undervaluation post Brexit vote and a significant London slowdown. Meanwhile, the undervaluation in Australia and China are largely a result of policy, such as taxes and regulations.