Global Housing Prices Synchronization

In recent years, a new phenomenon of global housing prices synchronization is observed. There have been some studies by IMF on this interesting phenomenon. This article reviews the theoretical framework and empirical studies that have been done. More recent casusal observations of the phenomenon will be provided separately.

First of all, the International Monetary Fund (IMF) has published several research reports in recent years [1,2,3], pointing out that global integration brings the risk of global property market synchronization, which is recognized as house-price synchronized co-movements in major capital cities.

In April 2018, the IMF issued a warning about the rising risk of global housing price synchronization [2]. The report suggests that “the motives of global and institutional investors searching for yield in a low-interest-rate environment have emerged as a potential explanation for the brisk and synchronized increases in house prices.” [2]; The IMF’s report put forward a theoretical framework (Figure 1) about global housing price synchronization, based on international trade and capital flows as well as the simultaneous investment decisions of global investors and lenders.

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Figure 1 Theoretical Framework for Global Housing Price Synchronization. Source: IMF (2018) [2]

In September 2018, IMF researchers published another study on the trend of price synchronization between cities, and found that “the global factor has significant effects on the house prices only in large and international cities.” [3], the synchronization of global house price change refutes the hypothesis that it is caused by the local supply and demand of housing.

Empirically, there was an IMF (2013) study which found that “global interest rate shocks tend to have a significant negative effect on global housing prices.” [1] As the Fed of the US has started to normalize interest rate, how does the recent increase of interest rate affect housing prices in big cities? The next article will show you some of the casual evidence of synchronized global housing price changes.

Katagiri (2018) [3] study has empirically confirmed that globally housing price changes in the past decades are synchronized by global factors and regional factors. Figure 2 depicts the estimation results in the study, and the dark blue bars represent the contribution of the global factor on each country’s housing price changes.

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Figure 2 Empirical evidence of synchronization of global and regional housing prices Source: IMF (2018) [3]

(Full article in Chinese was published in HKEJ Monthly Dec 2018 [4])

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[1] Hirata, H., Kose, A., Otrok, C. and Terrones, M. (2013) Global House Price Fluctuations: Synchronization and Determinants, WP/13/38.

[2] IMF (2018) House Price Synchronization: What Role for Financial Factors?, Chapter 3, Global Financial Stability Report, Apr: A Bumpy Road Ahead.

[3] Katagiri, M. (2018) House Price Synchronization and Financial Openness: A Dynamic Factor Model Approach, IMF Working Paper WP/18/209.

[4] Yiu, C.Y. (2018) Global Housing Price Downward Trend (息魔殺到,全球樓價見頂回落),Hong Kong Economic Journal Monthly 501, Dec. 90–92.

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