Around the world, global monetary tightening is strangling homebuyers.

Once-Hot Global Residential Markets Suddenly Turning Cold

A new threat is facing the world economy on top of raging inflation, turmoil in global stock markets and the on-going war in Ukraine: the unraveling of a massive housing boom.

While central banks worldwide are increasing interest rates in efforts to contain inflation everywhere, skyrocketing borrowing costs are strangling already overly stretched prospective homebuyers.

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This is a sharp about-face from years of surging prices, rock-bottom mortgage rates and gigantic government stimulus packages.  An analysis by Bloomberg Economics indicates that prices are now out of line with market fundamentals.

This Bloomberg analysis shows that 19 OECD countries have combined price-to-rent and home-price-to-income ratios that are currently higher than they were prior to the 2008 financial crisis.

Five Gauges of Property Risk for OECD Countries

Bloomberg Economics ranked OECD countries for property risk by using these five gauges:

  • Price-to-Rent Ratio
  • Price-to-Income Ratio
  • Real Price Growth
  • Nominal Price Growth
  • Credit Growth

Rankings were determined by taking an average of scores for each of the five measures.  The higher the score, the greater the risk of a home price correction.

Most At-Risk OECD Countries

  1. New Zealand
  2. Czech Republic
  3. Hungary
  4. Australia
  5. Canada
  6. Portugal
  7. US
  8. Austria
  9. Russia
  10. Luxembourg
  11. Netherlands
  12. Germany
  13. Sweden
  14. Switzerland
  15. UK
  16. Chile
  17. South Korea
  18. Japan
  19. France
  20. Spain
  21. Poland
  22. Greece
  23. Ireland
  24. Columbia
  25. Denmark
  26. Belgium
  27. Norway
  28. Finland
  29. Italy
  30. South Africa

A 2008-Style Collapse Unlikely

Bloomberg Economics is very clear that “…a 2008-style (housing collapse) is unlikely.”  The buffers against such a collapse include tightened lending standards, strong labor markets, hearty household savings and housing shortages in many countries.

Still, due to inflation, more than 50 central banks around the world have raised interest rates by at least 50 basis points this year and more hikes are anticipated.  (As we know, the US just boosted its main interest rate by 75 basis points.)  The effect of those synchronized interest rates is being felt worldwide in terms of slowing demand.

Simply, housing consumers are being more cautious everywhere.

Thanks to Bloomberg.

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