Canada’s recent housing market strength is impressive and to some, feels ominous with assumptions that it is reaching a pinnacle that will lead to a fall. But with a narrow view restrained to our borders it is hard to understand how our market fares in a bigger global picture. On an international scale, the growth in Canadian home prices compared to other countries is barely in the top third of the world. Housing world-wide has shown a remarkable recovery from the depths the markets reached during the global economic crisis of 2009, and many markets are now stronger than ever.
Those conclusions and other details about the global housing market come from our reading of the International Monetary Fund’s (IMF) recently published Global Housing Watch, which is released quarterly. Overall it paints a picture of a world where housing is in demand in many countries and where prices are rising in tandem with that demand. In brief, here is what the data shows:
- On a ‘real’ (inflation-adjusted) basis, global home prices rose by 2 percent year-over-year for the period ended in the third quarter of 2015[i]. Although there were wide variations between countries, 48 per cent of the 64 countries surveyed – 75 per cent – showed positive real house price growth over the period.
- Overall, there has been a significant turnaround in housing since the global economic crisis. In 2009, a time when much of the world’s economy was struggling out of recession, just 24 per cent of countries surveyed by the IMF showed prices to be on the rise, compared to the current 75 per cent.
- Canadian home prices were up sharply over the surveyed year, but on a relative basis the growth was not particularly strong. Canadian home prices did increase[ii] by 4.2 per cent in real terms over the year, which is a substantial gain. However, that pace of growth was the 22nd strongest of the countries surveyed by the IMF, putting Canada in the top third of countries in terms of housing market strength.
- The strongest home price increase in the world was seen in Qatar (23.3 per cent). Other notable housing price growth was seen in Sweden (13.5 per cent), New Zealand (10.3 per cent), Ireland (9.1 per cent), India (8.6 per cent), Australia (8.2 per cent) and the United States (6.2 per cent).
- World-wide affordability is on the decline in about half of the countries in the IMF survey. That is, in half of the countries house prices are rising faster than incomes and rent. However, the latter indicator is likely biased by the fact that rents are controlled in some of the surveyed countries.
- According to the IMF’s calculations, as of the third quarter of 2015 the Housing Price-to-Income ratio for Canada was 109, compare to 100 in the base year of 2010, which suggests prices have increased 9 per cent more than incomes since that time. In contrast, the figure for the U.S. is 4 per cent.
Looking at the global housing market, it can only be a positive that there has been so much recovery since the depths of the financial crisis. Presumably that is what central banks around the world wanted and expected to happen when they reduced interest rates to generational lows in the wake of the crisis and the following years. That Canada is not experiencing housing price growth as strong as other countries is likely a by-product of Canada never experiencing a major recession in housing on the same level as those other countries. Countries like the United States and Ireland, in contrast, went through major boom bust cycles over the past few years.
More recently, the extreme price increases in some housing markets (including Canada’s) have prompted concerns about whether housing price corrections are ahead. Although the data does not give much conclusive evidence about that one way or the other, the fact that house prices are rising more quickly than incomes is notable. However, that says less about what is happening with home prices than what is happening with incomes, which in Canada, as is the case in so many other countries, have not been on the rise as compared to economic growth.
So should we be concerned with the trends in home prices around the world? Not necessarily, as long as the global economy stays on course. Since the IMF collected their data on housing, we know that there have been indications that the global economy is weakening. Like everyone else, we will be carefully monitoring the situation to make sure that the housing market has a strong foundation.
[i] For Canada and for most countries the data relates to the third quarter of 2015. However, in a few cases the most recent data available is for the second quarter of the fourth quarter and so that is used instead
[ii] The data used by the IMF comes from a the Bank of International Settlements, Colliers International, the European Central Bank, the Federal Reserve Bank of Dallas, Savills, Sinyi Real Estate Planning and Research and national sources