The Unassuming Economist

“Swedish house prices are potentially overvalued by more than 15 percent. House prices have more than doubled since the mid-1990s, increasing by about 140 percent in real terms between 1995 and 2007 and remaining broadly stable since then. Current estimates suggest that house prices are overvalued by 15 to 18 percent, accounting for rental regulations,” the IMF said in its latest annual report on Sweden. 

A new IMF working paper finds that a country’s geography, demographics, and economic conditions (e.g. income level, credit conditions, and stock market performance) are the driving forces behind the changes in construction shares. The results of the paper show that “During the boom, many countries overshoot the norm. After the crisis, the process has reversed and many countries have undershoot the norm. But for some countries, the adjustment has fallen short of the model’s predictions.” So, “when economic conditions normalize over the medium term, Greece, Iceland, and Ireland in advanced Europe, and Latvia, Lithuania, Hungary, and Ukraine in emerging Europe may see a recovery in their construction shares. But construction shares could decline further in Spain, the United Kingdom, Romania, and the Slovak Republic.”

In Germany, “Nationwide property prices have continued to rise, driven mainly by stronger increases in apartment prices in some major cities. However, these prices remain below historical averages and do not appear excessive.”

In France, “(…) prices have been declining: housing activity has slowed markedly and prices have fallen by 1.9 percent in 2013 Q1 from their peak in 2011 Q3,” according to the latest IMF economic report on France. To read more click here.