Over the past decade, the world has experienced an unprecedented house price boom in terms of magnitude and duration, but also of synchronization across countries. During the 2001 recession, house prices disconnected from the business cycle. Low interest rates and mortgage market innovations fuelled housing demand and mortgage equity withdrawal boosted private consumption in a number of economies, in particular in English-speaking countries. Household debt reached record levels in many OECD economies.
The global “savings glut” associated with global trade imbalances helped keeping long-term interest rates low, which along with lax lending standards and opaque secularization in some countries, extended the boom. In some markets, sustained house price increases led to exuberance linked to the belief that the upward trend could go on forever. After prices started to fall in some US States around the end of 2006, the subprime mortgage market collapsed, triggering a deep financial crisis, which plunged the world economy into the worst economic recession since the Great Depression. Outside the United States, housing markets, which had been overheating, have also adjusted dramatically. There is a risk that tighter financing conditions and the recession might put additional pressure on housing markets, even though there are early signs of stabilization or recovery of housing markets in many countries.
Against this backdrop, this paper documents developments in a sample of 18 OECD countries’ housing markets since 1970, putting recent evolutions into historical perspective and elaborates on a number of important issues with regard to housing market dynamics and policies. While each of these issues would deserve an in-depth study, the aim of this paper is to give an overview of the most important interactions between housing markets and the macro economy