IMF sounds global housing alarm

June 11, 2014 7:00 pm

IMF sounds global housing alarm

By Robin Harding in Washington

The world must act to contain the risk of another devastating housing crash, the International Monetary Fund warned on Wednesday, as it published new data showing house prices are well above their historical average in many countries.

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The warning from the IMF shows how an acceleration in global house prices from already high levels has emerged as one of the major threats to economic stability, with countries making limited progress in keeping them under control.

Min Zhu, the IMF’s deputy managing director, said the tools for containing housing booms were “still being developed” but that “this should not be an excuse for inaction”.

House prices “remain well above the historical averages for a majority of countries” in relation to incomes and rents, Mr Zhu said in a speech to the Bundesbank last week, which was only released on Wednesday because it clashed with a European Central Bank announcement.

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“This is true for instance for Australia, Belgium, Canada, Norway and Sweden,” he said.

In the wake of the global recession central bankers have cut interest rates to record lows, pushing house prices to a level that the IMF regards as a significant risk to economies as diverse as Hong Kong and Israel.

In Canada, for example, house prices are 33 per cent above their long-run average in relation to incomes and 87 per cent above their long-run average compared with rents. The figures for the UK are 27 per cent relative to incomes and 38 per cent relative to rents.

The IMF’s new global house price index shows a fresh acceleration, with prices up by 3.1 per cent on a year ago. House prices are rising fastest in emerging markets, with prices up more than 10 per cent on a year ago in the Philippines, 9 per cent in China and 7 per cent in Brazil.

“In some cases house prices are recovering from a sharp correction during the Great Recession,” Mr Zhu said. “In other cases, house prices have continued an upward march with only a bit of moderation during the Great Recession.”

House prices fell most heavily in peripheral European countries, down by 7 per cent on a year ago in Greece, 6.6 per cent in Italy and 5 per cent in Spain. Mr Zhu said that even though the tools for controlling house prices were new, countries must start using them immediately. He pointed to options including limits on mortgage lending relative to house values and incomes; higher capital requirements for banks making risky loans; and stamp duties to damp foreign demand for investment properties.

“We need to move from ‘benign neglect’ to an ‘all of the above’ approach when it comes to policy choices,” said Mr Zhu, adding that policy makers could combat the shortcomings of different approaches with “the interlocking use of multiple tools”.

In the US, house prices are rising fast but not overvalued, coming in at 13.4 per cent below their long-run average relative to incomes, and 2.6 per cent above their long-run average relative to rents, according to the IMF’s numbers.

 

The world’s cheapest housing market is Japan, where housing is 41 per cent below its long-run average relative to incomes and 38 per cent relative to rents. Germany and Estonia also appear cheap, with prices in both more than 10 per cent below their long-run average compared with incomes and rents.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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