New Zealand and Canada are the economies most vulnerable to corrections to home prices, with Australia and Britain also attracting attention, according to new research from Bloomberg Economy.
Looking to build "the housing bubble dash," economist Niraj Shah studied the ratio of housing prices to rent and income and prices adjusted for inflation and household loans.
The results show that Canada and New Zealand appear to be on the most unsustainable path, with housing costs compared to the highest wages in the world in both countries. Australia, Norway, Sweden and Britain also raised alarms, Shah said.
New Zealand has the highest ratio of house prices to rent in the world, and the highest house prices compared to income, according to Shah.
Canada has the highest house prices and the largest percentage of credit for households, followed by New Zealand, he said.
New Zealand household loans are equivalent to 94 percent of gross domestic product. That compares with 100.7 percent of GDP in Canada, 76 percent in the US, and 120 percent in Australia, according to Shah's research.
New Zealand's central bank cut its benchmark interest rate, the official interest rate (OCR) to a record low of 1.5 percent in May, prompting banks to cut mortgage rates. Reserve Bank held the OCR last month but is expected to cut interest rates later this year.
There is speculation that the OCR can fall below 1 percent.
The Canadian government has imposed taxes on foreign buyers, while overseas purchases have been banned in New Zealand. The next challenge is whether prices continue to rise because the Federal Reserve and other central banks are preparing to cut interest rates.
"There is a risk that a global round of monetary easing can trigger a housing bubble," Shah said.
"While the central bank is focused on avoiding the global economic downturn, looser monetary policy can sow the seeds of the next crisis."
Home prices have just returned to the peak they reached before the last period of financial turmoil, according to an index of 57 countries.
The New Zealand housing market has been marked as the biggest potential problem for the economy, the OECD has recently warned.