IMF's most overvalued housing markets around the world

Era of Benign Neglect of House Price Booms is Over

Theory asserts that house prices, rents, and incomes should move in tandem over the long run. If house prices and rents get way out of line, people would switch between buying and renting, eventually bringing the two in alignment. Similarly, in the long run, the price of houses cannot stray too far from people’s ability to afford them––that is, from their income. The ratios of house prices to rents and incomes are thus often used as an initial check on whether house prices are out of line with economic fundamentals. 

Hence we also need macroprudential policies aimed at increasing the resilience of the system as a whole. The main macroprudential tools used to contain housing booms are limits on loan-to-value (LTV) ratios and debt-to-income (DTI) ratios and sectoral capital requirements (Figure 4). Hong Kong SAR has imposed caps on loan-to-value and debt-to-income ratios since 1990s, Korea since 2000s, and during and after the global financial crisis, over 20 advanced and emerging economies have followed their example.

Another macroprudential tool is to impose stricter capital requirements on loans to a specific sector such as real estate. This forces banks to hold more capital against these loans, discouraging heavy exposure to the sector. In many advanced economies—Ireland, Norway, and Spain— and emerging market economies— Estonia, Peru, and Thailand— capital adequacy risk weights were increased on mortgage loans with high loan to value ratios.

IMF have posted several graphs. (Yes, they let a graphic artist go a bit wild with them…)

According to the blog, Belgium is an exception to being in trouble, despite the higher than average price to income and rent. That leaves Canada as the most troubled country on both measures with New Zealand and Australia not far behind. Also flirting with a worrisome bubble are France, UK, Sweden, Norway.

IMF have also launched a new site to pull together all their data on world housing markets.

IMF's New Global House Price Watch

Why Australia is floored by sky-high house prices

A nice summary of the situation. Why Australia is floored by sky-high house prices

I find that many Australians don’t truly appreciate how expensive housing is in Australia. Two simple examples might shed some light on the subject.

Sydney dwelling prices, for example, are around 50 per cent higher than prices in New York, despite New York being home to more accumulated wealth than anywhere in the world.

We shake our heads at the US over their lending practices leading up to the global financial crisis, but banks in Australia routinely lend two or three times as much to couples who need support from their parents simply to make the deposit.

Have to point out a gem in the comments (unless it's satire, hard to tell sometimes)

John, June 13, 2014 10:01
You anarchists are really funny. So the economy is extremely fragile but you want the RBA to jack up interest rates to crash the property market so you can buy a house on the cheap ? So, so funny. Like most anarchists, yourself and Steve Keen haven't really thought this thru have you ? According to such geniuses, Australian Banks are so highly geared to property that if there is a predicted 30 to 40% fall in the value of property, the Big 4 banks will be bankrupt. In other words your funds will be frozen, not only by your Bank but by the government as well. So please enlighten us, trying as hard you can to keep a straight face, how are you going to actually to buy that cheap house if you can't access your savings, or do you just have a very very very big mattress ? …

You know it's over when the bulls are pre-blaming the bears for the fallout from the market correcting. Markets that don't get blown into bubbles by bull cheerleading of bad regulation don't run the risk of devastating corrections, do they?

Australian housing boom "doesn't have long to run"

The big hole in Australia's housing market

On a trend basis, growth in the value of loan approvals to owner occupiers slowed to 0.1 per cent in April (compared with 1.7 per cent in October) while for investors, growth slowed to 0.5 per cent (compared with 4.0 per cent in September). This should come as little surprise, though to the best of my knowledge it has received little emphasis elsewhere, and is a trend that we should keep an eye on. Low interest rates have encouraged owner-occupiers and investors to bring their purchases forward, but that eventually creates a void that must be filled. If it can’t be filled — and it is unlikely that anything can replace investor speculation — then loan approvals will tank and house prices, which are demand-driven, will inevitably follow suit.