## HOUSE PRICE SYNCHRONIZATION: WHAT ROLE FOR FINANCIAL FACTORS?

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**Canonical URL:** [HOUSE PRICE SYNCHRONIZATION: WHAT ROLE FOR FINANCIAL FACTORS?](https://www.imf.org/-/media/files/publications/gfsr/2018/april/chapter-3/doc/sum3.pdf)

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### Context and purpose
- Rising house prices have been a feature of the economic recovery in many countries since the global financial crisis.
- Recent increases have also been occurring in an accommodative monetary policy environment in many advanced economies, raising the specter of financial instability should financial conditions reverse and simultaneously lead to a decline in house prices.
- The chapter analyzes whether and how house prices move in tandem across countries and major global cities — that is, the synchronicity of global house prices — to inform policymakers about the implications of heightened synchronicity.

### Key findings
- The chapter finds an increase in house price synchronization, on balance, for 40 countries and 44 major cities in advanced and emerging market economies.
- Cities in advanced economies may be particularly exposed to global financial conditions, perhaps owing to their integration with global financial markets or to their attractiveness for global investors searching for yield or safe assets.
- Higher synchronization can signal a downside tail risk to real economic activity, especially when taking place in a buoyant credit environment.

### Explanations and mechanisms
- Countries’ and cities’ exposure to global financial conditions may help explain the increase in house price synchronization.
- Higher synchronization may result from global financial conditions influencing local house price dynamics and housing markets, thereby propagating local economic and financial shocks.
- While higher synchronization and deeper global links in housing markets may bring benefits, they may also propagate shocks across borders via financial channels.

### Policy implications and recommendations
- Policymakers cannot ignore the possibility that shocks to house prices elsewhere may affect domestic markets.
- House price synchronization by itself may not warrant policy intervention, but heightened synchronicity can serve as a signal of increased downside tail risk to the economy, implying closer monitoring is warranted.
- The trade-offs of implementing macroprudential and other policies should take into account potential unintended effects on a country’s house price synchronization with the rest of the world.

### Macroprudential effectiveness and unintended effects
- Macroprudential policies seem to retain some ability to influence local house price developments even in countries with highly synchronized housing markets.
- Macroprudential policy measures put in place to tame rising vulnerabilities in a country’s financial sector may have the additional effect of reducing a country’s house price synchronization with the rest of the world.
- These unintended effects are worth considering when evaluating the costs and benefits of macroprudential policy actions.

*International Monetary Fund | April 2018*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2018/april/chapter-3/doc/sum3.pdf_