Global Property Market Heats Up

Abode 2 luxury property magazine reports that real estate prices around the world are flashing the kind of bubble warnings that haven’t been seen since the run up to the 2008 financial crisis.

New Zealand, Canada and Sweden are flagged as “the world’s frothiest housing markets,” as revealed by the latest findings, from Bloomberg Economics, with high price-to-rent and price-to-income ratios, and aggressive rates of price inflation. The UK and the US are also showing signs of property bubbles, which means that price corrections could be on the cards.

This list is based on five metrics, including price-to-rent and price-to-income ratios (which help assess the sustainability of price gains), and the rate of house price growth. Many countries are now seeing higher price ratios than they were just before the 2008 financial crisis.

A cocktail of ingredients is sending house prices to unprecedented levels worldwide. Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing.

Risks of a sharp correction are “greater when there’s a synchronised boom in house prices – as is the case in the current cycle. But “the trigger for a crash isn’t obvious” – at least while interest rates and borrowing costs remain low – allowing the team to suggest that, for most countries, the way out of bubble-risk “will more likely be characterised by cooling rather than collapsing” property markets.