Q&A: Seven Questions on the Global Housing Markets

• Author: Hites Ahir - Heedon Kang - Prakash Loungani
• Pages: 9-12

IMF Research Bulletin

6

The housing sector sati sfies an essential need. Housing is an

important component of investment and in ma ny countries

housing makes up the larg est component of wealth. At the

same time, housing booms an d busts have often been det-

rimental to financial s tability and the real economy. This

article descr ibes the state of global housing ma rkets—includ-

ing the role that foreign investors are playing—a nd policy

responses to manage hou sing booms.

Question 1. What is the state of global housing

markets today?

Aer sharp decl ines during the Great Recession, the

IMF’sGlobalHousePriceIndexhasbe eninchingupover

the past two years (Figu re 1). During the past year, house

prices increased in about ha lf the advanced economies

included in this index a nd about two-thirds of the

emerging economies.

In a number of countries—C anada, many countries in the

Asia-Pacic region, and many Scand inavian countries—the

price of houses have increased steadi ly aer a brief correc-

tion during the Great Recession. For ma ny OECD coun-

tries, house price-to-income and house price -to-rent ratios

remain above historica l averages—this is true for example

inAustralia ,Belgium,Canada ,Norway,andSweden.While

this provides a broad indicat ion of possible housing market

valuations, one should be war y about assessing overvalu-

ation from this evidence a lone. Judgments about housing

valuation requ ire supplementary infor mation (e.g., credit

growt h, household indebtedness, lender cha racteristics, and

the method of nanci ng) as well as knowledge about within-

country developments (e.g., in some cases the house price

increases may be concentrated in pa rticular cities or regions)

and institutions.

For instance, Belgium s tands out for its high ratios of

house prices to rents and incomes. But, on the basis of a

more detailed analy sis of the supplementary factors, an IMF

sta report concluded that “risk s of a sharp correction of

real estate prices appea r contained.” Among other countries,

IMF assessments point to modest over valuations in Canada,

Israel,Norway,andSweden.Inmanycases,thehousi ng

price booms are restricte d to particular cities (as in Austra lia

and Germany, for example) or reect supply constraints (as

inNewZealand).

Question 2. How important are foreign investors in global

housing markets?

Countries var y in the degree to which they permit foreign

investment in their housing ma rkets. According to a survey

by the Association of Foreign Investors in Rea l Estate, the

countries with t he “most stable and secure” environments

for real estate investments for foreign investors are t he fol-

lowing: United States, Canada , Germany, Australia, United

Seven Questions on the Global Housing Markets

Hites Ahir, Heedon Kang, and Prakash Loungani

Q&A

Figure 1: Global House Price Index: Inching Up Again?

Source: Global Property Guide, Haver Analytics, Organisation for Economic

Co-Operation and Development, and author’s calculations.

100

110

120

130

140

150

160

Weighted by GDPEqually weighted

2014q1

2013q1

2012q1

2011q1

2010q1

2009q1

2008q1

2007q1

2006q1

2005q1

2004q1

2003q1

2002q1

2001q1

2000q1