International housing bubble is forming, IMF warns
Several developed nations looking more than frothy
The American housing market is frothy with some already seeing signs of a legitimate bubble, and now the International Monetary Fund is raising the alarm about housing markets in developed countries.
“House prices are inching up. 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,” warns IMF’s deputy managing director Min Zhu. “In fact, our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises.”
The IMF’s Global Housing Watch studies international housing market information to keep track of boom and bust cycles in dozens of advanced nations.
They assemble country-level data on housing trends in one location, allowing for more transparent cross-country and historical comparisons.
“The era of benign neglect of housing booms is over,” Min said. “It is only by maintaining an open dialogue on these issues that we will gain a solid understanding of how policies can contain housing booms.”
Back home, the overall stall out of the housing recovery and the resurgence of activity in subprime mortgages and jumbo loans – the high and low end of the mortgage spectrum – are causing concerns.
Click the thumbnail to see the price chart.
Home prices in California and Florida continue to climb, outstripping affordability and driven by investor and cash sales rather than owner-occupant sales.
Meanwhile, in the United Kingdom, worry over a British housing bubble is all the talk for next year’s elections.
“Four years after the chancellor of the exchequer (Mark Carney) pledged in his first speech to London bankers to arm the Bank of England with powers to prevent financial crises, surging house prices are putting pressure on officials to use them,” Bloomberg reports. “With the housing market becoming a battleground in an election less than year away, the dilemma for Britain’s economic policy makers is how to prevent a bubble from forming without angering voters by creating barriers to homeownership.”
Click below to see the affordability chart.
Meanwhile, just this week Chinese real estate mogul Pan Shiyi, CEO of Soho China, likened the local Chinese housing market to "the Titanic" on its way to its rendezvous with an iceberg.
"After hitting the iceberg, the risks will not only be in the real estate sector. The bigger risk will be in the financial sector," he told an investment meeting in Shanghai.
Progressive favorite Paul Krugman, the lockstep Kenynesian political economist, says Sweden is having a full on housing bubble, and even in Canada some believe a crash is looming like the sword of Damocles.
Notably, economist Nouriel Roubini who foresaw the 2008 crisis says that Canadian banks are in far better shape to handle a correction than American banks were.