Mapped: The Countries With The Highest Housing Bubble Risks

Mapped: The Countries With the Highest Housing Bubble Risks

With a decade-long bull market and an ultra-low interest rate environment globally, it’s not surprising to see capital flock to housing assets.

For many investors, real estate is considered as good of a place as any to park money—but what happens when things get a little too frothy, and the fundamentals begin to slip away?

In recent years, experts have been closely watching several indicators that point to rising bubble risks in some housing markets. Further, they are also warning that countries like Canada and New Zealand may be overdue for a correction in housing prices.

Key Housing Market Indicators

Earlier this week, Bloomberg published results from a new study by economist Niraj Shah as he aimed to build a housing bubble dashboard.

It tracks four key metrics:

  1. House Price-Rent Ratio
    The ratio of house prices to the annualized cost of rent
  2. House Price-Income Ratio
    The ratio of house prices to household income
  3. Real House Prices
    Housing prices adjusted for inflation
  4. Credit to Households (% of GDP)
    Amount of debt held by households, compared to total economic output

Ranking high on just one of these metrics is a warning sign for a country’s housing market while ranking high on multiple measures signals even greater fragility.

Housing Bubble Risks, by Indicator

Let’s look at each bubble risk indicator, and see how they apply to the 22 countries covered by the housing dashboard.

It should be noted that most of the measures here are shown in an index form, using the year 2015 as a base year. In other words, the data is not representative of the ratio itself—but instead, how much the ratio has risen or fallen since 2015.

1. House Price-Rent Ratio

When looking at housing prices in comparison to rents, there are four countries that stand out.

New Zealand (196.8) and Canada (195.9) have seen ratios of housing prices to rents nearly double since 2015. Meanwhile, Sweden (172.8) and Norway (168.2) are not far behind.

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Moon Kil Woong 4 weeks ago Contributor's comment

Governments should be more interested in preventing housing bubbles and should also be more concerned with the welfare of their people by insuring they have housing for their population. One may notice if they work to insure the public has access to decent affordable housing it helps solve housing bubbles. So basically it tends to mean governments are failing at the issue of insuring basic affordable living needs for their population.

There are some exceptions. Countries can work to provide decent rental prices for their population and housing prices rise on speculation which is arguably what is happening in Canada. That is a whole nother issue given the speculation is a lot of foreign capital often with 0% interest in even living there let alone care about anything else besides treating the purchase as a gable and/or getting capital out of their country's restrictive monetary controls (mainly China).