| Click for the Finfacts Ireland Portal Homepage |

Finfacts Business News Centre

Home 
 
 News
 Irish
 Irish Economy
 EU Economy
 US Economy
 UK Economy
 Global Economy
 International
 Property
 Innovation
 
 Analysis/Comment
 
 Asia Economy

RSS FEED


How to use our RSS feed

 
Web Finfacts

See Search Box lower down this column for searches of Finfacts news pages. Where there may be the odd special character missing from an older page, it's a problem that developed when Interactive Tools upgraded to a new content management system.

Welcome

Finfacts is Ireland's leading business information site and you are in its business news section.

Links

Finfacts Homepage

Irish Share Prices

Euribor Daily Rates

Irish Economy

Global Income Per Capita

Global Cost of Living

Irish Tax - Income/Corporate

Global News

Bloomberg News

CNN Money

Cnet Tech News

Newspapers

Irish Independent

Irish Times

Irish Examiner

New York Times

Financial Times

Technology News

 

Feedback

 

Content Management by interactivetools.com.

News : International Last Updated: Jun 1, 2010 - 5:32:21 AM


IMF economist forecasts more house price falls in both the US and Europe
By Finfacts Team
May 31, 2010 - 6:58:17 AM

Email this article
 Printer friendly page

Irish economist Prof. Morgan Kelly of UCD isn't the only one with a gloomy outlook on house prices and last week in Washington DC, IMF (International Monetary Fund) economist Prakash Loungani, forecast more falls in both the US and Europe.

At a National Economists Club lunch last Thursday, Loungani presented his analysis of housing busts since 1970 in the countries that make up the 31-member country Paris-based government think-tank, the OECD (Organization for Economic Cooperation and Development). He forecast that house prices will fall much farther and for much longer. On average, the previous housing slumps lasted 18 quarters, with prices falling 22% from peak to trough. By contrast, the current housing recession has lasted only 14 quarters, during which prices have dropped just 15%.

However, Loungani said the latest boom was so much bigger than the previous ones and it’s logical to anticipate an even more brutal downturn. Prices rose 113% over 41 quarters, compared with 39% average price increase over 39 quarters seen in the previous booms. He likened the current cycle to a rollercoaster which has roared up a steep hump and now needs to come down again.

“A lot of adjustment has taken place in house prices, so we shouldn’t discount that. But it’s true that we shouldn’t declare victory too soon. We’ve now had a fresh shock from what’s happening in Europe,” he said.

Loungani argued that house prices are still inflated and said prices in OECD countries in 2009 were significantly out-of-line with rents and incomes in those countries compared with average values from 1970 to 2000. In the long run, he argued, incomes and rents will act as weights on home prices, bringing them back to earth.

Price-to-rent and price-to-income ratios were well above historical values in all OECD countries with the exception of Japan, Germany and Switzerland, according to the analysis. New Zealand, Australia, the Netherlands and Belgium saw the biggest misalignment with historical price-to-income values, while Canada, Sweden, Norway and Australia saw the largest gaps in price-to-rent values.

Loungani said his analysis of prices and rents in US metro areas suggests that many markets on the West coast and in parts of the Northeast could yet see prices plummet a further 30-40%.

"International comparisons of house price to income ratios have been widely used to suggest that Australian house prices are significantly overvalued," Australian bank ANZ's head of property Paul Braddick, said in a research note. "These analyses … explicitly ignore a key component of the housing affordability equation - - interest rates."

Housing affordability was underpinned by debt servicing levels, of which interest rates were a key driver. Braddick said housing affordability and the sustainability of current house price levels were "extremely complex issues."

"Drawing conclusions from simplistic aggregate metrics such as house price to income ratios is very unwise," he said.

Maybe or maybe not  - - in recent times, the latter would have been the safer option. In Australia, one positive factor is that fear of unemployment is not a significant factor compared with countries like Ireland. In addition, Australia is not weighed down by public debt.

Slideshow | Podcast

The 31 OECD member countries are: Australia, Austria, Belgium, Canada, Chile (since January 2010), the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States.

Related Articles
Related Articles


© Copyright 2010 by Finfacts.com

Top of Page

International
Latest Headlines
Wednesday newspaper review: December 17, 2014
Tuesday newspaper review: December 16, 2014
Monday Newspaper Review - Irish Business News and International Stories - - December 08, 2014
Friday Newspaper Review - Irish Business News and International Stories - - November 28, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - November 27, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - November 25, 2014
Friday Newspaper Review - Irish Business News and International Stories - - November 21, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - November 20, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - November 19, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - November 18, 2014
Monday Newspaper Review - Irish Business News and International Stories - - November 17, 2014
Friday Newspaper Review - Irish Business News and International Stories - - November 14, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - November 13, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - November 12, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - November 11, 2014
Monday Newspaper Review - Irish Business News and International Stories - - November 10, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - November 06, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - November 04, 2014
Monday Newspaper Review - Irish Business News and International Stories - - November 03, 2014
Friday Newspaper Review - Irish Business News and International Stories - - October 31, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - October 30, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - October 29, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - October 28, 2014
Friday Newspaper Review - Irish Business News and International Stories - - October 24, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - October 22, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - October 21, 2014
Monday Newspaper Review - Irish Business News and International Stories - - October 20, 2014
Friday Newspaper Review - Irish Business News and International Stories - - October 17, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - October 16, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - October 15, 2014
Monday Newspaper Review - Irish Business News and International Stories - - October 13, 2014
Friday Newspaper Review - Irish Business News and International Stories - - October 10, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - October 09, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - October 08, 2014
Tuesday Newspaper Review - Irish Business News and International Stories - - October 07, 2014
Monday Newspaper Review - Irish Business News and International Stories - - October 06, 2014
Thursday Newspaper Review - Irish Business News and International Stories - - October 02, 2014
Wednesday Newspaper Review - Irish Business News and International Stories - - October 01, 2014
Monday Newspaper Review - Irish Business News and International Stories - - September 29, 2014
Friday Newspaper Review - Irish Business News and International Stories - - September 26, 2014