global house prices around the world

Global House Prices: falling, recovering, or bubbling?

1

Hites AhirSenior 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.

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

I. HOUSING MARKET AND THE ECONOMY

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

1970

Q1

1970

Q4

1971

Q3

1972

Q2

1973

Q1

1973

Q4

1974

Q3

1975

Q2

1976

Q1

1976

Q4

1977

Q3

1978

Q2

1979

Q1

1979

Q4

1980

Q3

1981

Q2

1982

Q1

1982

Q4

1983

Q3

1984

Q2

1985

Q1

1985

Q4

1986

Q3

1987

Q2

1988

Q1

1988

Q4

1989

Q3

1990

Q2

1991

Q1

1991

Q4

1992

Q3

1993

Q2

1994

Q1

1994

Q4

1995

Q3

1996

Q2

1997

Q1

1997

Q4

1998

Q3

1999

Q2

2000

Q1

2000

Q4

2001

Q3

2002

Q2

2003

Q1

2003

Q4

2004

Q3

2005

Q2

2006

Q1

2006

Q4

2007

Q3

2008

Q2

2009

Q1

2009

Q4

2010

Q3

2011

Q2

2012

Q1

2012

Q4

Weighted by GDP Equally weighted

Global House Price Index Weighted (2000=100)(real house prices, seasonally-adjusted quarterly series, 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, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, United Kingdom, and United States.

Source: OECD, Global Property Guide, Haver, and authors' calculations

Latest2013Q2

II. 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

15N

eth

erla

nds

Gre

ece

Cro

atia

Sp

ain

Hun

gar

y

Cyp

rus

Italy

Slo

ven

ia

Mal

ta

Po

rtug

al

Bul

gar

ia

Lith

uan

ia

Irel

and

Cze

ch R

epub

lic

Fra

nce

Ko

rea

Slo

vak

Rep

ublic

Jap

an

Sin

gap

ore

Ch

ina

Rus

sian

Fed

erat

ion

Icel

and

Un

ited

Kin

gdom

Den

mar

k

Bel

giu

m

Can

ada

Latv

ia

Fin

land

Luxe

mbo

urg

Ph

ilipp

ines

Aus

tral

ia

Sw

eden

Po

lan

d

No

rway

Est

on

ia

Ger

man

y

Th

aila

nd

Ind

one

sia

Sw

itzer

lan

d

Un

ited

Sta

tes

So

uth

Afr

ica

New

Zea

lan

d

Mal

aysi

a

Ind

ia

Isra

el

Bra

zil

Aus

tria

Tur

key

Co

lom

bia

Ukr

ain

e

Ho

ng

Ko

ng

House Prices around the World (51 countries)2013Q2 or latest, yoy

Source: OECD, Global Property Guide, Haver, and authors' calculations


7

Among OECD countries, increases and declines are more evenly balanced

-50

-40

-30

-20

-10

0

10

20

30

40

50Ire

land

Gre

ece

Sp

ain

Den

mar

k

Icel

and

Net

herla

nds

Uni

ted

Sta

tes

Italy

Jap

an

Uni

ted

Kin

gd

om

Po

rtug

al

Fra

nce

New

Zea

land

Ko

rea

Slo

vak

Rep

ublic

Fin

land

Bel

giu

m

Aus

tral

ia

Sw

eden

Ger

man

y

Aus

tria

Can

ada

No

rway

Sw

itzer

land

Isra

el

Magnitude of Adjustment in House Prices

Percent decreased (-) or increased (+) since Q4 2006

Source: OECD and authors calculations


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

III. 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

Jap

an

Gre

ece

Ger

man

y

Po

rtug

al

Slo

veni

a

Cze

ch R

epub

lic

Slo

vak

Rep

ublic

Icel

and

Sw

itzer

land

Uni

ted

Sta

tes

Irela

nd

Italy

Ko

rea

Luxe

mb

our

g

Net

herla

nds

Isra

el

Aus

tria

Den

mar

k

Sp

ain

Sw

eden

Uni

ted

Kin

gd

om

Fra

nce

Fin

land

Aus

tral

ia

Bel

giu

m

No

rway

New

Zea

land

Can

ada

Magnitude of overvaluation or undervaluation in house price-to-rent ratio

Undervalued (-) or overvalued (+) compared to the historical average



Overvalued

Under valued

10

… as do house price-to-income ratios

-50

-30

-10

10

30

50

Jap

an

Ko

rea

Ger

man

y

Uni

ted

Sta

tes

Slo

vak

Rep

ublic

Irela

nd

Sw

itzer

land

Slo

veni

a

Po

rtug

al

Cze

ch R

epub

lic

Fin

land

Luxe

mb

our

g

Gre

ece

Den

mar

k

Italy

Aus

tria

Sp

ain

Sw

eden

Net

herla

nds

New

Zea

land

No

rway

Aus

tral

ia

Can

ada

Uni

ted

Kin

gd

om

Fra

nce

Bel

giu

m

Magnitude of overvaluation or undervaluation in house price-to-income ratio

Undervalued (-) or overvalued (+) compared to the historical average



Overvalued

Under valued

11

Different trajectories: real house prices in the UK, Canada, and the US

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.


13

House prices and house price valuation measures are rising….


-

20

40

60

80

100

120

1970

:119

72:2

1974

:319

76:4

1979

:119

81:2

1983

:319

85:4

1988

:119

90:2

1992

:319

94:4

1997

:119

99:2

2001

:320

03:4

2006

:120

08:2

2010

:320

12:4

United Kingdom

Real house prices Historical average

40

50

60

70

80

90

100

110

120

1975

:119

77:2

1979

:319

81:4

1984

:119

86:2

1988

:319

90:4

1993

:119

95:2

1997

:319

99:4

2002

:120

04:2

2006

:320

08:4

2011

:120

13:2

United Kingdom

Price-to-income ratio

Historical average

40

50

60

70

80

90

100

110

120

1970

:119

72:2

1974

:319

76:4

1979

:119

81:2

1983

:319

85:4

1988

:119

90:2

1992

:319

94:4

1997

:119

99:2

2001

:320

03:4

2006

:120

08:2

2010

:320

12:4

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 1,875,350Source: The Economist


20

40

60

80

100

120

140

160

180

200

1970

:119

72:2

1974

:319

76:4

1979

:119

81:2

1983

:319

85:4

1988

:119

90:2

1992

:319

94:4

1997

:119

99:2

2001

:320

03:4

2006

:120

08:2

2010

:320

12:4

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

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.


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 (…)."IV. EXAMPLE OF POLICIES USED IN THE HOUSING MARKET

20

30

40

50

60

70

80

90

100

110

120

1970

:119

72:2

1974

:319

76:4

1979

:119

81:2

1983

:319

85:4

1988

:119

90:2

1992

:319

94:4

1997

:119

99:2

2001

:320

03:4

2006

:120

08:2

2010

:320

12:4

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

:119

72:2

1974

:319

76:4

1979

:119

81:2

1983

:319

85:4

1988

:119

90:2

1992

:319

94:4

1997

:119

99:2

2001

:320

03:4

2006

:120

08:2

2010

:320

12:4

Canada

Real house prices Historical average

17

United States: house prices are rising but mortgages rates are rising as well

V. 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-13Source: 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)

V. 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 Homeownershipin percent

64

65

66

67

68

69

70

2000

2001

2002

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012


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

2011

est

2012

est


The rise in rental occupancy in millions of units

Owner

Renter (right axis)

19

Thank you

global house prices around the world

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