Housing markets in the United States and Europe have more room to fall in 2012 despite remaining flat as of late, as rents and prices are still too high relative to incomes, says Prakash Loungani, a senior resource manager in the International Monetary Fund's research department.
Housing prices have fallen in recent years but stayed largely in the doldrums in 2011, as rental markets firmed.
But two indicators, the ratios of house prices to income and to house prices to rent, indicate the overall sector is still too pricey based on what most can afford.
"If these two ratios are above their historical averages, economic theory suggests that declines in house prices may still be in the offing," Loungani says in an IMF blog post, as reported by the Wall Street Journal.
The problem exists even in troubled European countries facing fresh downturns, such as Spain and Italy.
"For all but a handful of countries, these ratios remain above, and in many cases well above, their historical averages, signaling that there may be room to fall."
The U.S. housing market has shown some signs of improving, with housing starts making gains although prices have yet to roar back.
Still, lasting recovery is a long way away, experts say.
"On the bright side, housing is legitimately improving," says Mike Widner, homebuilder analyst at Stifel Nicolaus in Baltimore, according to CNBC.
"In terms of housing and housing construction, it's going to take another five years — 20 percent growth a year for five years — to get back to a normal pace of construction."
© 2013 Moneynews. All rights reserved.