Irish economist Prof. Morgan Kelly of UCD isn't the only one with a gloomy outlook on house prices and last week in Washington DC, IMF (International Monetary Fund) economist Prakash Loungani, forecast more falls in both the US and Europe.

At a National Economists Club lunch last Thursday, Loungani presented his analysis of housing busts since 1970 in the countries that make up the 31-member country Paris-based government think-tank, the OECD (Organization for Economic Cooperation and Development). He forecast that house prices will fall much farther and for much longer. On average, the previous housing slumps lasted 18 quarters, with prices falling 22% from peak to trough. By contrast, the current housing recession has lasted only 14 quarters, during which prices have dropped just 15%.

However, Loungani said the latest boom was so much bigger than the previous ones and it’s logical to anticipate an even more brutal downturn. Prices rose 113% over 41 quarters, compared with 39% average price increase over 39 quarters seen in the previous booms. He likened the current cycle to a rollercoaster which has roared up a steep hump and now needs to come down again.

“A lot of adjustment has taken place in house prices, so we shouldn’t discount that. But it’s true that we shouldn’t declare victory too soon. We’ve now had a fresh shock from what’s happening in Europe,” he said.

Loungani argued that house prices are still inflated and said prices in OECD countries in 2009 were significantly out-of-line with rents and incomes in those countries compared with average values from 1970 to 2000. In the long run, he argued, incomes and rents will act as weights on home prices, bringing them back to earth.

Price-to-rent and price-to-income ratios were well above historical values in all OECD countries with the exception of Japan, Germany and Switzerland, according to the analysis. New Zealand, Australia, the Netherlands and Belgium saw the biggest misalignment with historical price-to-income values, while Canada, Sweden, Norway and Australia saw the largest gaps in price-to-rent values.

Loungani said his analysis of prices and rents in US metro areas suggests that many markets on the West coast and in parts of the Northeast could yet see prices plummet a further 30-40%.

"International comparisons of house price to income ratios have been widely used to suggest that Australian house prices are significantly overvalued," Australian bank ANZ's head of property Paul Braddick, said in a research note. "These analyses … explicitly ignore a key component of the housing affordability equation - - interest rates."

Housing affordability was underpinned by debt servicing levels, of which interest rates were a key driver. Braddick said housing affordability and the sustainability of current house price levels were "extremely complex issues."

"Drawing conclusions from simplistic aggregate metrics such as house price to income ratios is very unwise," he said.

Maybe or maybe not  - - in recent times, the latter would have been the safer option. In Australia, one positive factor is that fear of unemployment is not a significant factor compared with countries like Ireland. In addition, Australia is not weighed down by public debt.

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The 31 OECD member countries are: Australia, Austria, Belgium, Canada, Chile (since January 2010), the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.