The IMF’s Global House Price Index, an average of real house prices across 57 monitored countries, continues to climb.

The index shows sixteenth consecutive quarters of positive year-on-year growth. However, house prices are not rising everywhere around the world.

Three Different Paths Since 2000

National Index vs. Major Cities

Price Divergences

  • On Australia, IMF assessment points out that house price gains have moderated. However, the extent of cooling has varied considerably across cities. The strongest price increases continue to be recorded in Sydney and Melbourne, where underlying demand for housing remains strong. With house prices still rising ahead of income, standard valuation metrics suggest somewhat higher house price overvaluation relative to the previous IMF assessment.
  • On Austria, IMF assessment notes that the cumulative increase in the house price index over 2007–2015 was nearly 40 percent. To a large extent, this increase was driven by price dynamics in Vienna. The OeNB residential price index indicator, which assesses whether prices move in line with fundamental factors, points to an overvaluation of property prices of about 22 percent for Vienna, while prices in the rest of the country appear broadly in line with fundamentals.
  • On Turkey, IMF assessment points out that the housing market exhibits significant variations across cities. Regional variations have been further accentuated by the presence of more than 2.7 million Syrian refugees since March 2011. Cities near the Syrian border, which have absorbed larger masses of Syrian refugees have seen significant rises in local housing prices since 2011, though they have moderated in recent years.

Mish Comments

Figure 1 screams “global bubble” even though some countries did not participate. Australia and Canada are the the center of the bubble along with some countries I was unaware of.

China is also in a massive bubble but that’s not what Figure 2 suggests.

On January 18, Zerohedge reported China Housing Bubble Finally Pops: First Slowdown After 19 Months Of Acceleration.

Here’s an amusing China tale from Bloomberg: China’s Housing Bubble Wobble

Earlier this year, Mr. and Mrs. Cai, a couple from Shanghai, decided to end their marriage. The rationale wasn’t irreconcilable differences or even mild disagreements; rather, it was a property market bubble in China’s financial hub. The pair, who operate a clothing shop, wanted to buy an apartment for 3.5 million yuan ($519,000), adding to a couple of places they already owned. But the local government had begun, among other bubble-fighting measures, to limit purchases by existing property holders. So, in February, the couple divorced. “Why would we worry about divorce? We’ve been married for so long,” says Mr. Cai. (He requested that the couple’s full names be withheld to avoid potential legal difficulties.) “If we don’t buy this apartment, we’ll miss the chance to get rich.”

In the first eight months of 2016, according to data compiled by Bloomberg, average prices for new homes rose 28 percent in Tier 1 cities, which encompass affluent metropolises like Shanghai, and 10 percent in smaller, Tier 2 cities. The boom traces to 2014, when the People’s Bank of China began easing lending requirements and cutting interest rates. The China Securities Regulatory Commission also lifted restrictions on bond and stock sales by developers, helping them raise money for new projects.

Soon, properties were selling for ever-larger sums in government land auctions. By June 2016, China’s 196 listed developers had incurred 3 trillion yuan in debt, up from 1.3 trillion three years before. In many cities a square meter of undeveloped land is worth more than a square meter of a finished home nearby, a situation the Chinese describe as “flour more expensive than bread.”

Mike “Mish” Shedlock