The latest data from the IMF Global Housing Watch says shows that, on average, prices are almost back up to where they were at the start of 2007. That said Australia and a number of other countries have had much stronger growth over this period.
There is a fair bit of cross-country variation, however. While house prices have increased over the past year in most countries in the sample, the pace of increase varies quite a bit. And there are still a dozen or so countries where house prices have fallen over the past year, including Brazil, China and Russia.
Both real house prices and real GDP growth in the 2007-2015 period were well below the boom experienced during 2000-2006. In the earlier period, global real GDP grew by over 4% per year while real house prices surged by about 9% on average. In the more recent period, these grew by just 2% and 1% per year, respectively. The simple correlation between real growth in house prices and GDP growth was very similar in the two periods at about 0.6.
The pace of credit creation also fell sharply between the pre- and post-crisis periods from 17% to 6%. The correlation between growth in house prices and credit expansion fell substantially from 0.8 to 0.3. Given that many countries sharply eased monetary policy during the post-crisis period, it seems reasonable to posit that slow credit growth was a result of diminished investment opportunities, reduced risk appetites on the part of lenders, and the adoption of macroprudential policies designed to reduce the probability of boom/bust cycles in the future. Moreover, the decline in the correlation between house prices and credit expansion suggests that other country-specific factors may have played a role in determining house prices.
One such factor is fiscal policy. We use as our indicator the change in the cyclically-adjusted primary fiscal balance as a percentage of GDP during each sub-period. The correlation between the change in the policy stance and home prices went from nearly zero to almost -0.5, suggesting that country-specific policy developments have played a role in determining the development of real estate prices.
Over the last quarter, there have been discussions of housing sector developments in IMF staff reports in over a dozen cases. One feature of the discussions has been a growing emphasis on the role of supply constraints in driving house price increases—this was flagged for instance in the case of Denmark and Germany. Another is the continued active use of macroprudential policies in several countries, among them Canada and the United Arab Emirates. Concerns about the extent of house price growth were flagged in the cases of the Czech Republic (“a strong housing market is becoming a potential source of risk”), Denmark (“rapid house price increases call for early policy action”) and Norway (“high and rising house prices and household debt in Norway pose important macro-financial stability risks”).
