Global home prices are on the rise, and numbers from the International Monetary Fund (IMF), the monetary policy arm of the UN, show that Canada ranks amongst the top ten of all of their housing indicators. While that sounds like a good thing, the IMF generally warns that too much growth means overvaluation. Overvaluation requires a correction, and if it goes too high, even a crash.
Global Real Home Prices
Most countries tracked by the IMF saw real home prices growth. This measure looks at how prices changed over the past 5 years. The top 5 countries for real price growth were
- Iceland (12.51%)
- New Zealand (12.23%)
- Hungary (10.65%)
- Latvia (10.51%), and
- Canada (10.49%)
15. UK (6.38%); 23. US (4.78%); Australia (2.12%)
The median growth for all countries was 2.86% . The top five countries grew at least 3 times that rate.
House Price-to-Income Ratio
Home prices grew faster than income in 15 of the 32 countries tracked by the IMF. This is a basic affordability measure for housing, and takes the median house price and compares it to the median disposable income over the life of a typical mortgage. The highest numbers were as follows:
- New Zealand (137.02%)
- Austria (126.43%)
- Germany (124.58%)
- Sweden (123.54%)
- Luxembourg (121.02%)
- Switzerland (120.12)
- Canada (118.75%)
- Estonia (118.34%)
- Norway (116.84%)
- Australia (116.79%)
- UK (112.14%)
- Belgium (106.84%)
- US (105.15%)
The higher the ratio, the less likely the country is able to maintain home prices without a severe correction.
House Price-to-Rent Ratio
This is the primary measure the IMF uses to determine if a market is “overvalued.” They use the ratio of home prices to the cost of renting, then measure the deviation from the normal. Generally speaking, it’s a smarter idea to rent in these countries if all you can afford is the median house price (or less).
- Turkey (149.70%)
- New Zealand (139.75%)
- Israel (132.94%)
- Canada (132.94%)
- Sweden (131.97%)
- Germany (129.48%)
- Norway (125.19%)
- Luxembourg (122.88%)
- Mexico (121.61%)
- Switzerland (113.48%)
- Austria (112.14%)
- Iceland (111.31%)
- Australia (110.71%)
- Japan (109.68%)
- Slovak Rep. (109.25%)
- UK (109.24%)
- US (108.61%)
Home price growth is generally a good thing, but too much of a good thing usually has consequences. The further away these prices get from healthy, sustainable growth, the worse it will be for the market. Best case scenario, years of stagnation while wages catch up with prices – not unlike what happened in the US. Worst case scenario…well, let’s not use the C-word. Uh…not that one, the housing c-word.
The comments above are edited ([ ]) and abridged (…) excerpts from the original article by Kaitlin Last
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