The Unassuming Economist

“The housing market is recovering from a very sharp decline during the crisis, but prices and household leverage are well below their peak levels,” says the new IMF economic report on Estonia. The report also says that “the housing market peaked in 2007 before house prices lost roughly half of their value by 2009. Prices have risen since then, but they are roughly midway between the peak and the trough. Loan-to-value ratios on new loans have fallen from roughly 100 percent of the purchase price before the crisis to roughly 60 percent since 2010.”

In Asia, macroprudential policies related to the housing sector has been the most effective. They have reduced house price inflation by two percentage points after one quarter. Moreover, “housing-related macroprudential instruments have had an impact—particularly caps on loan-to-value ratios and the taxation of housing transactions. In particular, such instruments have helped lower credit growth, slow house price inflation, and dampen bank leverage in Asia (although the latter effect is quite small),” says a new IMF study on Macroprudential Policy and Capital Flow Measures in Asia: Use and Effectiveness. 

“House prices have been growing strongly since the crisis-related drop in 2008-09, but according to crude measures, valuations appear broadly in line with fundamentals,” according to the IMF’s annual economic report on Qatar.

House Prices in OECD Countries: Where Do They Stand?

When comparing current house prices to the fourth quarter of 2006, the scale is balanced with half of the countries showing an increase in house prices and the other half showing a decline. However, the picture changes when we look at standard house price valuations in OECD countries. More than half of the OECD countries are above their historical averages for price-to-income and price-to-rent ratios. But, these valuations metrics should be taken with a grain of salt (e.g. in Finland, there is a difference between how actual average markets rents and the CPI rent component have developed, which over time results in difference in price-to-rent ratio). 

A new IMF note on Malaysia’s housing market points out that:

• “The high growth in housing prices over the past two years cannot be easily attributed to the factors that, historically, have explained developments in house prices (…) the growth rate in house prices displays a structural break in 2010.”

• “In particular, the behavior of residential loans does not seem to contribute to the recent dynamics of house prices.”