Global housing: big losers and policy winners Since housing generally went bust in 2007-2009, the sector's performance has been a mixed bag globally. This has given the economics team at Goldman Sachs a chance to use the verb "bifurcate," which is quite frankly one of the most brilliant words in the English language: Globally, residential home prices have stabilised since the housing bust of 2007-09. But that statement hides significant variation underneath the global aggregate: in fact, there has been a sharp bifurcation between two groups of countries, which we have called the "housing high-flyers" (countries where real house prices have increased strongly and are up cumulatively since 1Q2009) and the "housing low-lyers" (where the housing market downturn appears to be continuing). The high-flyers include the likes of Germany, France, Canada, Austria, Belgium, Finland, Israel, Norway, Sweden and Switzerland. Concerning why these countries have managed so well: ...suggest that not only have the housing markets in these countries been boosted by their robust cyclical recoveries, they have also imported a significant dose of "inadvertent" monetary easing from the easy policies in the G4. And the fact that G4 policy is likely to remain easy for "an extended period," to borrow a phrase from the Fed, means that this tailwind will continue for some time. There are important differences among the "high-flyers" in terms of valuations and recent construction activity, which suggest that housing market risks may be relatively greater in countries such as Canada and Norway than, say, in Germany. Careful now, Canada. Careful. You too, Norway. We have our eye on you. As for the low-lyers, there are a number of proper housing-busters among them: the US, Japan, Italy, the UK, Denmark, Spain, Greece, Ireland, and the Netherlands. Not to legitimise data-mining, but: To get more of a taste of the decline that each country saw in the bust, and subsequent (non-) recovery: Of course those bars will contain a great deal of intra-country variation, but the overriding macro factors are interest rates and income growth, alongside the comfy financial conditions thanks to accommodating authorities, says the team at Goldman. Trying to discern how much of the performance of the high-fliers is down to each factor is pretty much impossible. This is where the team at Goldman whip out a cool adjective to go with their earlier brilliant verb choice: Moreover, issues of endogeneity loom large, meaning that the "housing high-flyers" may have enjoyed strong recoveries partly on account of the monetary stimulus, making it hard to separate the two. So the stronger house price performances here may simply reflect that domestic/non-traded areas do better if easing is successfully provided in the face of external pressure. Quite. In any case, should it be a concern that some countries" housing markets are managing to fly high? Here, the team looks to numbers of housing permits, using a baseline for the historical average: Over to the Goldman economists: On this metric, "high-flyers" like Canada, Norway and Switzerland look relatively more exposed - current permit levels here are at or above the historical average in these countries and not far off recent peaks. By contrast, Germany, Sweden and Australia have permit levels below long-term averages. But will it become a problem? To the extent that this easing pressure is unwelcome - particularly from the perspective of providing fuel to fresh housing bubbles - this places policymakers in the "high flyers" in a tricky dilemma. Short-term policy rates are a relatively blunt measure for dealing with any excesses in the housing market. Which they think is determining the latest fashion these days that no regulator would be seen dead without: These considerations explain, to a significant extent, the current fad for macroprudential measures among global central bankers and regulators. Since sector-specific restrictions on loan-to-value ratios or capital charges can be directly applied to housing-related excesses, they allow policymakers to sidestep any policy tightening that can affect the broader economy.