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House prices in Sydney are overvalued by as much as 50%, according to new data released by The Economist. However, property markets around the world are reaching a turning point with house price inflation down by 1.5% compared to 12 months ago.

The data, released by The Economist as part of its first cities house-price index, ranks Sydney seventh of 22 global cities, with house and apartment prices up 64% over the last 10 years. As much as 50% of the increase occurred over the last five years.

In its calculations, The Economist has compared prices with median household incomes; if prices rise faster in the long run than earnings as they have done in Sydney, they may be unsustainable, and therefore, overvalued.

The findings place Sydney alongside Vancouver, where houses are overvalued by 65%; London where they are 59% overvalued; and Amsterdam and Copenhagen, which are both overvalued by 50%.

Looking at key global trends, the index also found that average house price inflation has slowed by 1.5%, down from 6.2% 12 months ago to 4.7% currently.

The average price of a home in the measured cities increased by 34% in real terms over the last five years. In some overvalued markets, including Auckland, London, Sydney and Toronto, house prices have begun to fall, albeit slowly.

Cities considered of fair value or undervalued include Tokyo, Milan, Singapore and New York.

The findings cited three primary reasons for the trend: People are leaving cities or no longer arriving in droves as they have been priced out of the market; housing prices have been supported by a failure of governments to expand supply in many cities; loose monetary policy since the financial crisis has made mortgages extremely cheap and has super-charged prices.

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