House prices in the United States are nearly 20% undervalued, especially in the states of California, Nevada, Michigan and Ohio, when compared to global markets, according to a report from independent macroeconomic research consultancy firm Capital Economics. What's more, the firm's US economist, Paul Dales, writes in a separate report that prices will continue to fall, but that this will probably not trigger another economic downturn. Dales also notes that prices on a national level increased on average 3-6% in 2009. But that trend will likely end, with prices falling another 5%, unless the government extends the homebuyer tax credit. The first note, released yesterday by chief property economist Ed Stansfield, found that in many countries -- but not the United States -- the house price-to-earnings ratio remained above the levels required to sustain a healthy mortgage market (illustrated below). Stansfield, by his admission, is hard pressed for an explanation as to why global housing prices remain detached from reality. In the United States, the economy is characterized by factors like growing unemployment, a dip in net wealth and an aversion to taking on debt, which outweigh potential market stimuli such as federal tax credits and low interest rates. The situation is not the same in other global markets, potentially explaining why housing remains overvalued, despite an abundance of the population hurting during an extended period of global economic doldrums. Employment in the UK and Australia, for example, remains resilient. "If the [tax] credit wasn't boosting demand, sales would not have accelerated so spectacularly in the months ahead of the original end-November expiration date and then collapsed in December," writes Dales in his most recent United States economic focus piece (illustration below). States where homes are the most overvalued are: Delaware, Montana and Oregon, as well as Washington DC, according to the Capital Economics reports. Analysts at Barclays Capital maintain that housing prices are unlikely to appreciate in the near future. Write to Jacob Gaffney.