IMF’s Min Zhu warns of global house price bubble

The International Monetary Fund (IMF) has warned that the global economy may be sleepwalking into a house price crash.

In a speech to the Bundesbank, IMF deputy managing director, Min Zhu, said that housing booms were neither widely understood nor analysed by economists and “the tools for containing housing booms were still being developed”.

But he pointed out that the global house price index had seen seven consecutive quarters of growth and in many major economies house prices were beginning to look stretched.

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When looking at the ratio of house prices to rents – a measure that Mr Zhu used as a way of checking “whether house prices were out of line with economic fundamentals” – an IMF study found that “among the OECD countries, ratios remain well above the historical averages for a majority of countries”.

While he said such data was not in itself evidence for an impending bust, Mr Zhu said the IMF was closely watching the figures, along with other measures, such as “credit growth, household indebtedness, lender characteristics, and the method of financing”.

Mr Zhu said the fact that tools to contain the boom were still not developed and that any actions that countries could take were complex “should not be an excuse for inaction”.

“The interlocking use of multiple tools might overcome the shortcomings of any single policy tool,” he said.

“We need to move from ‘benign neglect’ to an ‘all of the above’ approach when it comes to policy choices.”