World’s Most Bubbly Housing Markets Flash 2008 Fashion Warnings

(Bloomberg) – Real estate prices around the world are showing the kind of bubble warnings that haven’t been seen since the lead-up to the 2008 financial crisis, according to Bloomberg Economics.

New Zealand, Canada and Sweden are considered to be the foamy real estate markets in the world based on the key indicators used in the Bloomberg Economics dashboard. The UK and the US are also at the top of the risk rankings.

Where house prices have risen the most

“A cocktail of ingredients is driving house prices worldwide to unprecedented levels,” wrote economist Niraj Shah in the report. “Record low interest rates, unprecedented fiscal incentives, lockdown savings that can be used as deposits, limited housing stocks and expectations of a robust global economic recovery all contribute.”

Domestic workers who need more space and tax incentives that some governments are offering to home buyers are also fueling demand.

The Bloomberg Economics dashboard compiles five indicators to estimate a country’s “bubble rank”, with a higher value indicating a greater risk of a correction. Among the indicators, the price-rent and price-income ratios help to assess the sustainability of price increases. The growth in house prices measures the current momentum.

For many countries in the Organization for Economic Co-operation and Development, prices are higher than they were before the 2008 financial crisis, according to Bloomberg Economics’ analysis.

Bubble ranking

Analysis shows that even if risk metrics are rising, interest rates are still low, lending standards are generally higher than in the past, and macroprudential guidelines apply, the trigger for a crash is not obvious. Shah said the period ahead would be more of a slowdown than a collapse.

Bloomberg Terminal readers can access the full report here: GLOBAL INSIGHT: Property Bubble Gauges Flash 2008 Level Alert

However, the risk is greater when there is a synchronized boom in house prices – as Shah said there is in the current cycle.

The story goes on

“As borrowing costs begin to rise, real estate markets – and broader measures to ensure financial stability – will be critically tested,” wrote Shah.

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