For Home Prices in London, Check the Tokyo Listings

IMF Blog, April 10, 2018

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House prices around the world have shown a growing tendency to move in the same direction at the same time.
IMF study covered 44 cities and 40 advanced and emerging-market economies.
The growing integration of financial markets is an important driver of greater house-price synchronization.
In 2017, growth picked up in 120 economies, accounting for three-quarters of world GDP — the broadest synchronized growth surge since 2010.
In countries more open to global capital flows, prices of both homes and equities tend to be more synchronized with global markets.
Policy actions to cool down hot housing markets remain effective and can reduce house price synchronicity.

Interest rates:
- Major central banks have kept interest rates unusually low for a long time, producing low borrowing costs globally, including cheap mortgages, which has helped push up house prices.
Institutional and investor activity:
- Institutional investors, private equity firms, and Real Estate Investment Trusts have been increasingly active in major cities such as Amsterdam, Sydney, and Vancouver seeking higher returns.
- Wealthy individuals have purchased properties in major financial centers (for investment and residence), disproportionately increasing prices in high-end neighborhoods in cities like New York and London.
Real economy coordination:
- Broad-based economic growth boosts demand for homes and therefore prices; the 2017 synchronized growth surge is highlighted as an example.
Asset-like behavior:
- House prices are beginning to behave more like prices of financial assets (stocks and bonds), influenced by international investors and global market conditions.

Monitor synchronous house-price movements closely because homes are typically:
- The biggest asset for most families.
- The biggest liability for many households, in the form of mortgages.
- A major exposure for banks through real estate loans, increasing financial sector vulnerability to housing swings.
Targeted housing-market measures that remain effective:
- Raising property taxes and stamp duties.
- Limiting the size of a home loan in relation to a home’s value (loan-to-value limits).
Broader policies to enhance resilience to global financial shocks:
- Flexible exchange rates to give policy makers more control over domestic borrowing costs.
- Policies to protect consumers against excessive indebtedness during housing busts.

These findings and recommendations are discussed in Chapter 3 of the latest Global Financial Stability Report.

Jane Dokko, Claudio Raddatz Kiefer — April 10, 2018