House prices in the world's major economies, which in 2009 were down an average of 5 percent from 2007, may keep dropping, said Prakash Loungani, an adviser to the International Monetary Fund's research department.
"The corrections thus far have not erased all of the excesses generated by the house price increases," Loungani wrote in the March issue of the IMF's "Finance and Development" magazine. "That leads to an uncomfortable conclusion: house prices in many countries still have room to fall."
Loungani didn't single out individual countries where homes may be overvalued. The article said prices will probably decline further because they remain "well above" levels seen at the start of the housing boom around 2000, and also because values are higher than rents and income, which "serve as long-run anchors" on the cost of residential real estate.
Loungani said that between 1970 and the mid-1990s, increases in home prices in 18 nations lasted about five years on average, and values climbed 40 percent after adjusting for inflation. During that same 25-year span, declines lasted an average of about four-and-a-half years and prices fell about half as much as they rose, the article said.
In contrast, the most recent global housing expansion lasted 41 quarters, almost twice as long as average, and prices rose three times as much.
"Because prices rose much more sharply than in earlier upturns, their decline might eclipse those observed in the past," Loungani wrote