Research Briefing | Jul 27, 2021

Global | The global housing boom in historical perspective

Our estimates suggest that house prices in advanced economies may be around 10% overvalued versus long-term trends, albeit with considerable variation between economies. This boom, while not as pronounced as the one that preceded the global financial crisis, is still one of the biggest since 1900.

Currently, house prices look around 9% higher than long-term trend levels, as defined by data-smoothing filters to remove cyclical fluctuations. Looking at long-run price-to-rent ratios compared to trend suggests prices may be overvalued by about 11%. By comparison, in the last boom that peaked in 2006, we estimate overvaluation was 13%-15%.

Since 1900, three broad phases are visible in world house prices: a stable period to the 1960s; steady growth to the 1990s; and accelerated growth since then. Prices cycle around these trends, with the duration of cycles often long.

The current housing upturn is already quite lengthy at around a decade, with the weighted real price rise of 43% also high in historic comparison. The current boom looks to be perhaps the second-longest and third-largest (in terms of price rises) since 1900.

The boom in housing prices since the 1990s has been associated with rapid expansion of mortgage credit. But in this upturn, although mortgage lending is showing signs of picking up, growth has not been very rapid compared to the period before the global financial crisis.

Some evidence suggests the longer a housing boom continues, the bigger the risk of a large reversal. Looking at individual economies, risk indicators show a varied picture: the riskiest markets look to be the Netherlands, Canada, Sweden, Germany, and France.

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