Real estate remains a local phenomenon, but let us not forget that the aggregate of local markets equals a larger national and international market.

AMERICAN homeowners, particularly those who have just bought their properties, are full of reasons why the run-up in house prices in recent years will continue indefinitely. These days, however, this is beginning to sound like so much whistling in the dark. While prices rose by 11.2% in 2004, the rate of increase slowed markedly in the fourth quarter, to only 1.7%. On Tuesday April 19th, the Commerce Department announced that housing starts fell by 17.6% in March, the sharpest monthly decline since 1991. The next day, the Mortgage Bankers of America (MBA), an industry group, reported that mortgage applications had fallen the previous week, despite a slight dip in interest rates. Investors who thought that real estate was a haven from the volatility of the equity markets might be getting a little nervous.

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America is not the only country that has been experiencing a big run-up in prices. Its market isn’t even the most frothy. Between 1997 and 2004, house prices more than doubled in Australia, Britain and Spain, and nearly tripled in South Africa and Ireland (see table). And while America’s ratio of house prices to rents is 32% higher than its average value from 1975 to 2000, by that metric houses are even more overvalued elsewhere: by at least 60% in Britain, Australia and Spain, and by 46% in France.

Read more at The Economist.