The major global cities, such as Hong Kong, London and Sydney, are some of the most expensive places in the world to live.
Recent analysis by economists at the IMF suggests that house prices in such cities are becoming more closely synchronised. Their research suggests that house prices in Tokyo or Hong Kong might be a better guide to prices in Sydney or London than prices in other parts of those countries.
The IMF study shows that the growing integration of financial markets plays an important role in this phenomenon. As a result, housing markets in one country are more sensitive to swings in another. The potential downside to this, highlighted by the IMF, is that an economic shock in one part of the world is more likely to affect housing markets elsewhere.
One reason suggested for this increased synchronisation is that the world’s major central banks have kept interest rates unusually low for a long time in a bid to stimulate growth. This has produced a ripple effect of low borrowing costs, including cheap mortgages, across the globe, which has helped push up prices.
The IMF report also notes that wealthy individuals have snapped up properties in major financial centres in search of safe places to invest their money, or even as a place to live. As a result, because the wealthy prefer high-end properties, their investments push up prices in expensive neighbourhoods in cities like New York and London.
The IMF economists point out that 2017 saw the broadest synchronised global growth surge since 2010. Economic growth is a major driver of demand for homes, and hence prices.
They conclude that house prices are starting to behave more like the prices of financial assets, such as stocks and bonds, which are influenced by investors elsewhere in the world. In countries that are more open to global capital flows, prices of both homes and equities tend to be more synchronised with global markets.
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