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The world’s largest housing bubbles

Australian housing prices have been on a record run over the past 12 months, however, a new report suggests it’s nowhere near the biggest bubble in the world.

According to a Bloomberg Economics Report, the biggest housing bubbles are in New Zealand, Canada and Sweden, with Australia taking out 15th place.

Other markets noted as nearing bubble status include Norway, the UK, Denmark and the US.

The study looked at each country’s home price to rent ratio and price to income ratio, to see if the recent price gains were sustainable or if the markets could well be at some risk of a correction.

House prices around the world have surged in recent months, boosted by record-low interest rates and government incentives as well as a huge surge in stimulus from central banks that are inflating all asset classes and devaluing fiat currency.

Bloomberg Economist Niraj Shah feels that there are a range of factors contributing to the surge in house prices.

“A cocktail of ingredients is sending house prices to unprecedented levels worldwide,” Mr Shah noted.

“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.”

The Bloomberg report also noted that there is likely no main trigger that would lead to a house price correction, however, when interest rates ultimately rise, many homeowners and investors could find themselves stretched.

Just last week the US Federal Reserve indicated that interest rate rising and now going to be bought forward, with two now scheduled for 2023.

Notably, Bloomberg points out that in many countries, the price ratios are now higher than they were before the Global Financial Crisis in 2007-2008, indicating that current prices might not be sustainable.

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.