IMF's Min Zhu: Are we "watching the same movie again" with house price rises preceding a crisis?
The International Monetary Fund’s Global Housing Watch has found that Australia ranks highly on a number of their calculations.
There were 19 countries recorded with drops in prices, with the biggest decrease seen in India with a -9.1% drop year on year.
Here are the countries that recorded an increase in value, and how they ranked.
{plotalot id="17"}
Source: OECD and IMF calculations
In the IMF’s other calculations, Australia sits within the top five (with Belgium, Norway, New Zealand and Canada just ahead) in terms of house prices being above rents, as well as scoring in the top three (with Canada and Belgium taking out top spots) as continuing to be “out of reach of household incomes”).
Deputy managing director for the IMF, Min Zhu, noted that house prices are inching up in the IMF blog.
"But is this a cause for much cheer? Or are we watching the same movie again? Recall how after a decade-long boom, house prices started to fall in 2006, first in the United States and then elsewhere, contributing to the 2008-9 global financial crisis. In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises," Zhu wrote.
He explained that theory asserts house prices, rents and incomes should move "in tandem over the long run", and that if these factors do not the people switch between buying and renting to eventually bring them into alignment.
"Similarly, in the long run, the price of houses cannot stray too far from people’s ability to afford them––that is, from their income. The ratios of house prices to rents and incomes are thus often used as an initial check on whether house prices are out of line with economic fundamentals," he said.
For Australia, he goes on to say that the ratios remain above the historical average.