The Economist magazine's latest survey of home prices around the world claims that the Canadian real estate is overvalued by 23.9 per cent.

The magazine's latest survey notes that house prices in Canada climbed 4.5 per cent from a year earlier, compared to a decline of 3.8 per cent in a reading for the third-quarter of 2009. Between 1997 and 2010, prices rose 70 per cent, the magazine said.

The Economist determines "fair value" of housing by comparing the current ratio of house prices to rent, with the long-term average. So homebuyers are likely to be overpaying for property when the price-to-rents ratio is higher than normal.

(In order to calculate the price-to-rents ratio, the purchase price of a house is divided by the annual rent that could have been earned by that house. So a home that costs $200,000 and could rent for $1,000 per month has a price-to-rent ratio of: $200,000 / $12,000 = 16.67. A high number might mean the house is overvalued; a low number means it may be undervalued.)

By this yard stick, Australia led the way among the most overvalued housing markets, with homes 63.2 per cent more expensive than they should be.

That was followed closely by Hong Kong, where the housing market is considered 58.1 per cent overvalued.

By comparison, the Economist says real estate in the United States is undervalued by 2.1 per cent, and houses in Japan are 34.6 per cent cheaper than their fair value.

Of the 20 countries tracked in the survey, only four posted year-over-year price declines. The biggest price increases were in Asian countries, with the exception of Japan, which saw prices fall four per cent compared with last year.