Overseas Markets on Verge of Bubble, IMF Warns

The International Monetary Fund says that several global housing markets are overheating, even in the U.S. – which is still digging itself out of a housing bubble that popped in 2008. Most of the warnings, however, have been issued for overseas.

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Economists are warning countries like China, Sweden, the United Kingdom (particularly London), and Canada that after years of rising housing prices, their housing markets may be overheating. In Sweden, housing prices have tripled over the past 10 years. In Canada, prices have been rising for years and some economists have speculated a housing crash is inevitable later this year.

But China has many economists particularly worried that its property market is overheating, ignited by the widespread availability of cheap credit. Pan Shiyi, CEO of Soho China, even compared the market to the sinking of the Titanic: “After hitting the iceberg, the risks will not be in the real estate sector,” Shiyi notes. “The bigger risk will be the financial sector.”

IMF policy makers are paying closer attention to the global housing market. Over the past year, 33 out of 52 countries in the IMF’s Global House Price Index have posted rises in home prices, even when the economies in the countries have been slowing down.

In the U.S., home prices have risen by about 5 percent on a yearly basis ending 2013. However, the economy has grown by about half that amount. Markets growing by the largest amounts on an annualized basis – more than 9 percent – were the Philippines, Hong Kong, and China, IMF notes. Economists say that home prices, rents, and incomes should move in tandem with the economy. When they get out of alignment, a housing bubble can form.