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World’s biggest housing bubbles flash 2008 GFC warnings

New Zealand has the world's worst housing bubble, according to Bloomberg. (Photographer: Mark Coote/Bloomberg)
New Zealand has the world's worst housing bubble, according to Bloomberg. (Photographer: Mark Coote/Bloomberg)

If you thought Australia’s housing bubble was bad, it’s nothing compared to our neighbour across the Tasman, new Bloomberg data has revealed.

New Zealand has been named as the world’s “frothiest” housing market, followed by Canada and Sweden. Norway, the UK and Denmark are closely behind.

Australia is on the list too, but down in 15th place behind Switzerland and ahead of Columbia, Spain, and Greece.

(Source: Bloomberg)
(Source: Bloomberg)

Five different indicators, such as price-to-rent ratios and price-to-income ratios are used to assess a country’s ‘bubble rank’.

But Bloomberg Economics analysts believe that many of these countries are flashing alarm bells even stronger than what they were just before the 2008 financial crisis.

“A cocktail of ingredients is sending house prices to unprecedented levels worldwide,” said Bloomberg economist Niraj Shah.

“Record low interest rates, unparalleled fiscal stimulus, lockdown savings ready to be used as deposits, limited housing stock, and expectations of a robust recovery in the global economy are all contributing.”

(Source: Bloomberg)
(Source: Bloomberg)

Will there be a global housing crash?

Shah doesn’t think so.

Though the risk metrics are even higher than they were before the GFC, we have higher lending standards in place and tighter policies ensuring the stability of the global financial system.

This time round, we’re looking at a ‘cooling’ more so than a ‘collapsing’, said Shah.

However, it doesn’t mean we’re out of the woods entirely.

“When borrowing costs do start to rise, real estate markets – and broader measures put in place to safeguard financial stability – will face a critical test,” Shah said.

What's happening in Australia?

Australia's house prices have skyrocketed in recent months, and are up 10.6 per cent from where they were 12 months ago.

The nation's property sector is now at an all-time high, valued at $8.1 trillion, and there are now more than 200 suburbs across the country where the median house price is upwards of $1 million.

But economists and experts are concerned that this is exacerbating wealth inequality, with some calling for a Royal Commission into Australia's fragmented approach to housing policy.

While Big Bank analysts are predicting house prices have further to run for some time yet, independent economist Stephen Koukoulas believes prices will fall before next year.

"Picking the timing of turning points in the massive Australian housing market is impossible, but in coming months, there should be a material cooling in house price growth as the supply surge crashes into the demand drought," he wrote for Yahoo Finance.

"By years' end, there should be clear weakness in house prices."

–with Bloomberg

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