Global House Prices May Fall Further

The Wall Street Journal reports, citing an IMF research article, that house prices across the globe may fall further. However, the IMF believes that the U.S. may be in a better position, compared with other developed nations.

According to the research article, house prices in major economies fell by an average of 5% after adjusting for inflation, from 2007 through 2009. The research looks at some key metrics to determine if the global housing markets have bottomed out.

One of the measures used by the research is to find out how much house prices have increased compared to rents. The other measure to gauge the situation in global housing markets is how much house prices surged compared to incomes. For many countries, these ratios are still way above long-term averages. The article concludes, “house prices in many countries still have room to fall.”

However, the U.S. is in a better position relative to the other countries in the developed world. The ratio of increase in house prices to rents is not far from the pre-boom average. The ratio of increase in house prices to incomes is in fact below the 1970-2000 average. However, the housing crisis has affected some parts of the U.S. more than others. The housing markets in parts of the country that saw house prices surge substantially during the bubble are still experiencing the effects of a bust. Among the countries in the developed world, Sweden, Spain and Canada are in much worse positions, compared with the U.S.