## Summary — Downsides Risks to House Prices (ch2sum)

## Source details

**Canonical URL:** [Summary — Downsides Risks to House Prices (ch2sum)](https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch2sum.pdf)

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### Scope and purpose
- Studies and quantifies "house prices at risk" (downside risks to future house price growth) in a sample of 32 advanced and emerging market economies and major cities.
- Focuses on predictors of heightened downside risks up to three years ahead.
- Explores how policy actions map into housing-sector vulnerabilities and financial stability.

### Key empirical findings
- Predictors of heightened downside risks to house prices:
  - Lower house price momentum.
  - Overvaluation.
  - Excessive credit growth.
  - Tighter financial conditions.
- The house-prices-at-risk measure:
  - Helps forecast downside risks to GDP growth over and above simpler measures of house-price imbalances.
  - Adds to early-warning models for financial crises.
- Temporal rotation of risks:
  - Downside risks to house prices have rotated since the global financial crisis.
  - Most countries that were at higher risk at the end of 2007 face lower risks today.
  - Nevertheless, in many advanced and emerging market economies house prices remain at risk.
- Policy links:
  - Tightening of macroprudential policies is associated with a reduction of downside risks to house prices.
  - Policies aimed at strengthening borrower resilience—such as limits to the maximum loan-to-value (LTV) or debt-service-to-income (DTI) ratios—are especially associated with lower downside risks.
  - Monetary policy:
    - Monetary policy can influence downside risks through financial conditions.
    - An unexpected easing of the monetary policy rate is associated with lower downside risks to house prices, but only in the short term in advanced economies.
  - Capital flow management measures:
    - The relationship is more nuanced.
    - Some results suggest a temporary association between a tightening of those measures and lower downside risks in advanced economies.

### Policy implications and recommendations
- Use of house-prices-at-risk in surveillance and policy design:
  - Policymakers in charge of financial stability can use estimates of house prices at risk to complement other surveillance indicators of housing-market vulnerabilities.
  - These estimates can guide macroprudential policy actions aimed at building buffers and reducing vulnerabilities.
- Macroprudential priority:
  - Targeted and timely macroprudential policies are found to be more effective than monetary policy in reducing downside risks to house prices, particularly measures that strengthen borrower resilience (LTV and DTI limits).
- Monetary policy considerations:
  - Downside risks to house prices could provide relevant information for monetary policymakers when assessing downside risks to the economic and inflation outlook.
- Micro- and macro-level resilience:
  - In addition to building buffers for banks, ensure households do not overborrow.

*Source: ch2sum (chapter summary).*

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_Source: https://www.imf.org/-/media/files/publications/gfsr/2019/april/english/ch2sum.pdf_