"To determine whether homes are fairly valued The Economist looks at the relationship between prices and disposable income—an indicator of affordability—and between prices and rents—a substitute for buying a home. If rising prices move these ratios above their long-run averages, then either incomes or rents are likely to rise, or house prices to fall. Across America house prices, after falling by 25% from their peak between 2007 and 2012, are now at fair value compared with rents and incomes. But thanks largely to their big cities, housing appears to be more than 40% overvalued in Australia, Britain and Canada, according to the average of our two measures..."
Continue Reading: http://www.economist.com/blogs/dailychart/2011/11/global-house-prices