Property prices have climbed to dangerous levels in several advanced economies, raising the risk of massive price falls if markets overheat, according to the Organisation for Economic Co-operation and Development (OECD).
Catherine Mann, the OECD’s chief economist, said the think-tank was monitoring “vulnerabilities in asset markets” closely amid predictions of higher inflation and the prospect of diverging monetary policies this year.
Mann said a “number of countries”, including Canada and Sweden, had “very high” commercial and residential property prices that were “not consistent with a stable real estate market”.
The EU’s financial risk watchdog recently warned that eight countries, including the UK, had property markets that risked overheating in the environment of low interest rates. The Bank of England also cautioned last month that the improvement in household finances seen since the 2008 crisis “may have come to an end”.
The OECD’s Mann said countries such as Canada, New Zealand and Sweden had all seen rapid increases in house prices over the past few years.
While many of these countries have already introduced policies designed to reduce financial stability risks, including forcing buyers to find larger deposits and imposing borrowing limits, Mann suggested that a house price crash would also reduce household spending.