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
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)