The Unassuming Economist

Global Housing Market: Spring in the air?

In a special report on house prices on March 30th 2002, the Economist said that if there is one single factor that has saved the world economy from a deep recession it is the housing market. In contrast, during the Great Recession (December 2007 to June 2009), the housing market was cast as the villain of the piece. How has the housing market fared since the end of the Great Recession? An updated global index of house prices has shown a mild sign of an uptick. Both the equally-weighted index and GDP-weighted index measures of global house prices show signs of improvement in house prices (see Chart 1).

Chart 1. Global House Price Index

Zooming in, house prices around the world have followed different trajectories. In some parts of the world, house prices have appreciated or recovered, in others they continue to fall. For example, house prices for the United States have improved, while the outlook for house prices in a good part of Europe is gloomy.

Chart 2. House Prices around the World

Still room for house price correction?

Chart 3 shows that in Canada, Belgium, Australia, United Kingdom and others, the house prices-to-income ratio and the house prices-to-rent ratio is still above historical averages. At the the other end, in Japan, United States, Germany, Greece and other countries, these rations are now below historical averages.

Chart 3. House Prices Relative to Incomes & Rents: Current Ratios Compared With Historical Averages 

Assessing the outlook for house prices requires a more detailed look than just these historical ratios. In recent months, IMF staff have written about the outlook in Canada, Denmark, France, Hong Kong, Ireland and South Korea.

House price growth moderated in 2012, although with some regional variation. National house prices fell 1.2 percent over the second half of 2012, driven mainly by the sharp retrenchment in British Columbia. In turn, this was mainly the consequence of a sharp correction of prices in the Vancouver area, where condos prices were down to their 2010 levels as of December 2012. On a yearly basis, national house prices index is still up by about 3.5 percent in 2012, slightly down from the 6 percent growth in 2011, with Toronto, Calgary and in particular Regina posting the largest increases, according to a new IMF report on Canada.

Moreover, the report points out that house prices are still on the strong side. As of December 2012, at a national level house prices were still almost 30 percent above their January 2009 trough. In Q3:2012, the house price-to-rent ratio was 60 percent above its historical average in Canada, more than in any other advanced economies with the only exception of Norway and Belgium. Price-to-income ratios also look high, and at almost 40 percent above their long-term average are among the highest.