House prices are becoming increasingly synchronised in many advanced and emerging market economies, according to the International Monetary Fund’s (IMF) latest Global Financial Stability Report.
In over 40 countries and 44 major cities—including Sydney and Melbourne—exposure to global financial conditions may provide an explanation for the rise in house price synchronisation.
“Cities in advanced economies may be particularly exposed to global financial conditions, perhaps owing to their integration with global financial markets or to their attractiveness for global investors searching for yield or safe assets,” the IMF said.
Policymakers cannot ignore the possibility that shocks to house prices in other parts of the world may impact Australia’s housing markets. While house-price synchronisation in and of itself may not warrant policy intervention, it could signal a downside tail risk to real economic activity, especially if it’s occurring in a buoyant credit environment.
“Macroprudential policies seem to retain some ability to influence local house price developments even in countries with highly synchronized housing markets, and that macroprudential policy measures put in place to tame rising vulnerabilities in a country’s financial sector may have the additional effect of reducing a country’s house price synchronization with the rest of the world,” the IMF said.
“These unintended effects are worth considering when evaluating the trade-offs of implementing macroprudential and other policies.”
