As Housing Prices Soar – Are We Headed for Another Crash?
A new devastating housing crash is in the making, the International Monetary Fund warned on Wednesday. Its global house price index has shown that in many countries property prices are well above their historical average. The IMF called on governments and central banks to take quick action on booms, which are a threat to global economic stability.
The world’s most expensive housing market is Canada, where housing is 33% above the long-run historical average relative to incomes and 87% relative to rents. An average Canadian house is now worth $409,708, up 7.6% in the past year.
On the other end of the spectrum is Japan, where house prices fell to 41% of the long-run historical average in relation to incomes and 38% compared with rents.
The UK found its place close to the higher end of the scale, with house prices exceeding the average by 27% relative to incomes and 38% relative to rents. The IMF’s global warning came only a few days after it encouraged the UK to build more houses and clamp down on risky mortgages to prevent a house price bubble.
The IMF expressed its concern after Nationwide’s latest house price index showed UK prices have increased by 11.1% in the past 12 months, to an average of £186,512, thus hitting the record high. But the monthly rate of growth slowed down in May, with a rise of 0.7% following April’s 1.2% increase.
“Boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises,” said IMF deputy managing director Min Zhu in a speech to the Bundesbank last week. “We need to move from ‘benign neglect’ to an ‘all of the above’ approach when it comes to policy choices.”