The Slowdown in Global Housing Markets

• Author: Tim Callen/Marco Terrones/Angela Espiritu
• Position: IMF's Research Department

Following a period of sharp price rises and strong activity, housing markets in a number of industrial countries have slowed. The Netherlands was the first country to experience a slowdown, with the downturn starting in 2000. Australia and the United Kingdom followed next. After annual house price increases exceeded 20 percent in 2002, the rate of house price appreciation in these countries has since eased considerably. And, over the past year, house price increases in the United States have slowed. Nevertheless, in other industrial countries, such as Ireland, France, Spain, and Sweden, house price growth remains strong.

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What has been the economic impact of recent housing market downturns? Cooling housing markets in Australia, the Netherlands, and the United Kingdom, among others, have been associated with a slowing in growth, as residential investment and consumption spending were hurt. But to date, the impact has been manageable.

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The increase in house prices in many countries since the late 1990s has exceeded what would have been expected on the basis of changes in underlying fundamentals, such as household income and interest rates. This suggests that house prices in these countries are overvalued, increasing the possibility of a price correction.

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Interestingly, house prices in the industrial countries move together despite the fact that housing is a nontradable asset. This correlation suggests there is a global house price cycle, driven at least partly by world interest rates. Thus, the downturns that have already occurred in a number of countries may be followed by slowdowns in other housing markets that are currently still seeing strong price increases.

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In the United States, house price appreciation during the current cycle has been strong by historical standards.

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There has, however, been...