Q&A: Seven Questions on the Global Housing Markets

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

The housing sector satisfies an essential need. Housing is an important component of investment and in many countries housing makes up the largest component of wealth. At the same time, housing booms and busts have often been detrimental to financial stability and the real economy. This article describes the state of global housing markets-including the role that foreign investors are playing-and ... (see full summary)

 
FREE EXCERPT
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

To continue reading

REQUEST YOUR TRIAL