Home price inflation ranges from record strong (e.g. the U.S.) to very weak (China and other parts of EM). In the hot markets, prices are now very high relative to both incomes and rents. However, some of the surge is a side effect of the move to remote work and prices are more likely to flatten out than collapse.
Home price inflation is very high in many markets, suggesting common factors at work including low borrowing rates and the increased demand for home office space. Some smaller markets are standout strong such as New Zealand, which has already begun to cool off. The U.S. also seems to stand out due to its unusually strong economy and unusually late central bank. Near the other end of the spectrum, China seems to be deliberately cooling the housing market and discouraging speculation.
According to the Bureau of International Settlements (BIS), real residential home prices accelerated in advanced economies to a hot 9.2% yoy rate in 3Q 2021 – the highest in the series’ limited history back to 2008 – before cooling to 8.1% in 4Q. Again, the U.S. has been a standout with real home price growth of 11.5% and 11.0% over the same period, surpassing the advanced aggregate.
Emerging economies have experienced a much different path, however. Real home price growth based on the BIS data has remained fairly tame throughout the pandemic, reaching a high of 2.6% yoy in 1Q 2021 and edging down to 1.9% by the end of the year. China in particular saw real home prices of -0.1% yoy in 4Q 2021. The global backdrop is going to skew towards the advanced economies given their size and influence. As a result, global home prices are still booming even with the emerging economies’ softness. The boom has pushed global home prices increasingly out of line with fundamentals, based on Organization of Economic Co-operation and Development (OECD) metrics. The bottom line is that this boom is looking unsustainable and seemingly ripe for reversal, especially as policymakers across developed markets gear up to fight inflation