The International Monetary Fund (IMF), best known for bailing out over-indebted countries, is worried about housing bubbles around the world. In a recent speech (here) Martin Zhu, the Deputy Managing Director of the IMF, notes that housing prices are climbing in numerous countries. Citing the experience here in the U.S. with the housing boom and bust and subsequent deep recession, he argues that we should not sit by and watch home prices, propelled by loose mortgages lending, climb to the sky. In simple terms, let’s learn something from the recent past. The IMF launched the Global Housing Watch web page. The charts at the bottom are from that site.
How serious are the risks of global housing bubbles?
The old story about the key to real estate being location-location-location might be replaced with country-country-country. A glance at the IMF charts shows that the conditions differ from country to country and that some places that appear out of line by one measure appear normal by another. Moreover, measures to moderate housing booms depend on national, not global, regulations and laws. One country that stands out with higher price-to-rent and price-to-income ratios is Canada. Looking back over the last few years, Canada was relatively unaffected by the financial crisis – no major bank failures or surge in foreclosures. However, home and apartment construction is strong and Vancouver in particular is experiencing a lot of foreign home buying coming from China. Another country seeing high home prices is England. In the last few days the Governor of the Bank of England and the Chancellor of the Exchequer have both suggested rules and regulations on mortgages tied to income levels and loan to value ratios. These are the same kinds of policies suggested by the IMF.
Click on the charts for a larger image.