US Real House Prices In a Global Context: Is The Dress White and Gold or Blue and Black?

According to the Global Housing Watch at the International Monetary Fund (IMF), real house prices across the world continued to grow in the in the 4th quarter of 2014, however, global house prices remain below their pre-financial crisis peak.

Globally, real house prices rose by 1.6% over the 4 quarters ending in the 4th quarter of 2014, 0.6 percentage points less than the year-over-year rate of growth recorded in the 3rd quarter of 2014 and 4.8 percentage points less than the average rate of growth, 6.4%, of real house prices between the first quarter of 2001 and the second quarter of 2008, before real house prices began to decline. The IMF calculates a real seasonally adjusted house price index for 64 countries including the United States. House prices in these countries are used to calculate a global house price index.

The growth rate in the global real house price index that was recorded in the 4th quarter of 2014 marks the 9th consecutive quarter of year-over-year growth. Over this 9-quarter period, real global house prices have risen by 4.0% and are now near their 4th quarter of 2006 level, 93.2% of the peak level reached in the first quarter of 2008.

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While overall, real house prices rose in the 4th quarter of 2014, relative to the 4th quarter of 2013, some countries recorded faster annual price increases than other countries and a handful of countries recorded a decline in real house prices over the year.

Figure 2 below places each country in buckets according to their rate of year-over-year real house price growth. Each country in the IMF’s global house price index has the same weight as other countries, so smaller countries have the same influence as larger countries. Each bucket has the same number of countries except the fifth bucket, or “quintile”, which has 1 less country. According to the figure, the countries recording year-over-year decreases in their real house prices are largely confined to the bottom quintile, with the Ukraine recording the largest year-over-year decline in real house prices, 48.0%. Meanwhile, the majority of the other 80% of countries experienced an increase in real house prices, with Qatar recording the largest year-over-year increase, 33.5%. Real house prices in the United States, which utilizes house price data from the Federal Housing Finance Agency (FHFA), rose by 3.7% over the year, placing it in the third quintile of countries.

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Although the 4-quarter growth of real house prices in the United States is moderate relative to the rest of the countries in the global house index, it is considered strong when compared to other advanced economies. For example, of the Group of Seven (G-7) economies, considered the largest advanced economies in the world, only the United Kingdom recorded a growth rate greater than the United States. The other 5 countries, Canada, Germany, France, Italy, and Japan, all recorded year-over-year growth rates in real house prices that lagged that of the United States. France, Italy, and Japan recorded outright declines in real house prices.

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Similarly, the 3.7% growth rate of real house prices in the United States is considered high relative to other countries in the Group of Twenty (G-20). The G-20 includes members of the G-7 as well as other important economies such as China, Saudi Arabia, and Russia. According to Figure 4, of the 18 countries which are included in both the IMF’s Global House Price Index and are members of the G-20, 4 countries recorded year-over-year house price growth that exceeded the United States, the United Kingdom, Australia, Turkey, and India, Meanwhile, 13 countries recorded growth rates that lagged the United States.

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