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Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
Global House Prices Around the World
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Global House Prices Around the World

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Global House Prices

Global House Prices

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  • 1. Global House Prices: falling, recovering, or bubbling? 1 Hites Ahir Senior Research Officer, IMF September 30, 2013 *This presentation uses material from a joint work with Prakash Loungani. The views expressed in this presentation are those of the author(s) and do not represent those of the IMF or IMF policy.
  • 2. Outline I. Housing market and the economy II. Global house prices at the macro level III. Global house prices at the micro level IV. Example of policies used in the housing market V. Housing market in the United States 2OUTLINE
  • 3. The importance of the housing market  1965: Sherman Maisel is the first to explore the effects of residential investment on the economy  2003: Morris Davis and Jonathan Heathcode conclude that housing prices are related to the overall state of the economy  2007: Edward Leamer argues that housing construction is an early warning of recession 3I. HOUSING MARKET AND THE ECONOMY
  • 4. 4 Housing cycle I. HOUSING MARKET AND THE ECONOMY
  • 5. Overall, global house prices are rising… 60 70 80 90 100 110 120 130 140 1970Q1 1970Q4 1971Q3 1972Q2 1973Q1 1973Q4 1974Q3 1975Q2 1976Q1 1976Q4 1977Q3 1978Q2 1979Q1 1979Q4 1980Q3 1981Q2 1982Q1 1982Q4 1983Q3 1984Q2 1985Q1 1985Q4 1986Q3 1987Q2 1988Q1 1988Q4 1989Q3 1990Q2 1991Q1 1991Q4 1992Q3 1993Q2 1994Q1 1994Q4 1995Q3 1996Q2 1997Q1 1997Q4 1998Q3 1999Q2 2000Q1 2000Q4 2001Q3 2002Q2 2003Q1 2003Q4 2004Q3 2005Q2 2006Q1 2006Q4 2007Q3 2008Q2 2009Q1 2009Q4 2010Q3 2011Q2 2012Q1 2012Q4 Weighted by GDP Equally weighted Global House Price IndexWeighted (2000=100) (real house prices, seasonally-adjusted quarterlyseries, average for 51 countries) Countries included: Australia, Austria, Belgium, Brazil, Bulgaria, Canada, China, Colombia, Croatia, Cyprus, Czech Republic, Denmark, Estonia,Finland, France, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Netherlands, New Zealand, Norway, Philippines, Poland, Portugal, Russia, Singapore, SlovakRepublic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, and United States. Source: OECD, GlobalProperty Guide, Haver, and authors' calculations Latest 2013Q2 5II. GLOBAL HOUSE PRICES AT THE MACRO LEVEL
  • 6. …with house prices rising in 30 countries out of 51 included in the index -15 -10 -5 0 5 10 15 Netherlands Greece Croatia Spain Hungary Cyprus Italy Slovenia Malta Portugal Bulgaria Lithuania Ireland CzechRepublic France Korea SlovakRepublic Japan Singapore China RussianFederation Iceland UnitedKingdom Denmark Belgium Canada Latvia Finland Luxembourg Philippines Australia Sweden Poland Norway Estonia Germany Thailand Indonesia Switzerland UnitedStates SouthAfrica NewZealand Malaysia India Israel Brazil Austria Turkey Colombia Ukraine HongKong House Pricesaround the World (51 countries) 2013Q2 or latest, yoy Source: OECD, GlobalProperty Guide, Haver, and authors' calculations 6II. GLOBAL HOUSE PRICES AT THE MACRO LEVEL
  • 7. Among OECD countries, increases and declines are more evenly balanced -50 -40 -30 -20 -10 0 10 20 30 40 50 Ireland Greece Spain Denmark Iceland Netherlands UnitedStates Italy Japan UnitedKingdom Portugal France NewZealand Korea SlovakRepublic Finland Belgium Australia Sweden Germany Austria Canada Norway Switzerland Israel Magnitude of Adjustment in House Prices Percent decreased (-) or increased (+) since Q4 2006 Source: OECD and authorscalculations 7II. GLOBAL HOUSE PRICES AT THE MACRO LEVEL
  • 8. Are these house price developments a cause for cheer or concern?  Evidence from house price valuation measures—price- to-rent and price-to-income ratios—is mixed.  Price-to-rent ratio: compares the total costs of homeownership vs. the cost of renting a similar property  Price-to-income ratio: basic affordability measure for housing in a given area 8III. GLOBAL HOUSE PRICES AT THE MICRO LEVEL
  • 9. In most OECD countries house price-to- rent ratios remain above their historical averages … -50 -30 -10 10 30 50 70 90 Japan Greece Germany Portugal Slovenia CzechRepublic SlovakRepublic Iceland Switzerland UnitedStates Ireland Italy Korea Luxembourg Netherlands Israel Austria Denmark Spain Sweden UnitedKingdom France Finland Australia Belgium Norway NewZealand Canada Magnitude of overvaluation or undervaluation in house price-to-rent ratio Undervalued (-) or overvalued (+) compared to the historical average Source: OECD and authorscalculations 9III. GLOBAL HOUSE PRICES AT THE MICRO LEVEL Overvalued Under valued
  • 10. … as do house price-to-income ratios -50 -30 -10 10 30 50 Japan Korea Germany UnitedStates SlovakRepublic Ireland Switzerland Slovenia Portugal CzechRepublic Finland Luxembourg Greece Denmark Italy Austria Spain Sweden Netherlands NewZealand Norway Australia Canada UnitedKingdom France Belgium Magnitude of overvaluation or undervaluation in house price-to-income ratio Undervalued (-) or overvalued (+) compared to the historical average Source: OECD and authorscalculations 10III. GLOBAL HOUSE PRICES AT THE MICRO LEVEL Overvalued Under valued
  • 11. Different trajectories: real house prices in the UK, Canada, and the US 11 20 40 60 80 100 120 140 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 Source: OECD USA CAN GBR IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET
  • 12. United Kingdom: policies for boosting the housing market…  Help to Buy is an initiative setup for buyers who want to purchase a property with as little as 5% deposit, the loan is interest-free for the first 5 years.  Fund for Lending is a scheme that is supposed to increase credit supply by providing lenders with cheap funds in return for commitments to lend to businesses and households. 12IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET
  • 13. House prices and house price valuation measures are rising…. 13IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET - 20 40 60 80 100 120 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 United Kingdom Real house prices Historical average 40 50 60 70 80 90 100 110 120 1975:1 1977:2 1979:3 1981:4 1984:1 1986:2 1988:3 1990:4 1993:1 1995:2 1997:3 1999:4 2002:1 2004:2 2006:3 2008:4 2011:1 2013:2 United Kingdom Price-to-income ratio Historical average 40 50 60 70 80 90 100 110 120 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 United Kingdom Price-to-rent ratio Historical average Source: OECD Source: OECD Source: OECD
  • 14. A housing bubble or a question of matching supply with demand? Rise in population Homes built 1971-1981 500,000 2,922,850 1981-1991 1,000,000 2,128,960 1991-2001 1,700,000 1,864,380 2001-2011 3,500,000 1,875,350 Source: The Economist 14IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET 20 40 60 80 100 120 140 160 180 200 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 United Kingdom Real House Prices Residential Investment Source: OECD 90 110 130 150 170 190 210 Jan-02 Dec-03 Nov-05 Oct-07 Sep-09 Aug-11 Jul-13 Source: ONS United Kingdom: House Prices Index ONS: UK HPI ONS: London HPI
  • 15. Canada: policies to cool the housing market 15 Implemented in 2008:  Limits on LTV ratio: a cap on the size of a mortgage loan relative to the value of a property, thereby imposing a minimum down payment  Cap on DTI ratio: restrict the size of a mortgage loan to a fixed multiple of household incomes, thereby containing unaffordable and unsustainable increases in household debt. IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET
  • 16. …but house prices and house price valuation measures continue to rise  “Canada’s house prices are bubbly,” according to The Economist.  "A more thorough analysis of home price sustainability must also take into account demographics," [the National Bank] said. "For that reason,(…) the Canadian housing market will do better than what many observers expect (…)." 16IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET 20 30 40 50 60 70 80 90 100 110 120 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 Canada Price-to-rent ratio Historical average 50 60 70 80 90 100 110 1975:1 1977:2 1979:3 1981:4 1984:1 1986:2 1988:3 1990:4 1993:1 1995:2 1997:3 1999:4 2002:1 2004:2 2006:3 Canada Price-to-income ratio Historical average 20 30 40 50 60 70 80 90 100 110 120 1970:1 1972:2 1974:3 1976:4 1979:1 1981:2 1983:3 1985:4 1988:1 1990:2 1992:3 1994:4 1997:1 1999:2 2001:3 2003:4 2006:1 2008:2 2010:3 2012:4 Canada Real house prices Historical average
  • 17. United States: house prices are rising but mortgages rates are rising as well 17V. THE HOUSING MARKET IN THE U.S. 90 110 130 150 170 190 210 230 250 Jan-00 Dec-01 Nov-03 Oct-05 Sep-07 Aug-09 Jul-11 Jun-13 Source: S&P/Case-ShillerFederal Housing Finance Agency, and FNC House Prices, Index S&P/Case-Shiller: Composite-20 Index (sa) S&P/Case-Shiller: Composite-10 Index (sa) 90 110 130 150 170 190 210 230 2 3 4 5 6 7 8 9 Jan-00 Dec-01 Nov-03 Oct-05 Sep-07 Aug-09 Jul-11 Jun-13 Source: Bloomberg and National Association of Realtors Mortgage rates and housing affordability Mortgage Market Survey 30 Year Homeowner Commitment, % Mortgage Market Survey 15 Year Homeowner Commitment, % Housing Affordability Index (right axis)
  • 18. United States: a nation of renters?  Many investors have bought houses and converted them into rentals. Blackstone has bought 33,000 units (FT).  It is estimated that US$17 billion has been invested with the potential of US$90 of billion of incremental market opportunity (Morgan Stanley) 18V. THE HOUSING MARKET IN THE U.S. 63 64 65 66 67 68 69 70 1968 1971 1974 1977 1979 1982 1985 1988 1990 1993 1995 1998 2001 2003 2006 2009 2012 Source: US Census Bureau Historical Homeownership in percent 64 65 66 67 68 69 70 2000 2001 2002 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: US Census Bureau Homeownership during the boom and bust, in percent 25 27 29 31 33 35 37 39 41 50 55 60 65 70 75 80 1980 1985 1990 1995 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011est 2012est Source: US Census Bureau The rise in rental occupancy in millions of units Owner Renter (right axis)
  • 19. Thank you 19

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