IHS Markit’s House Price & Credit Crunch Scenario Report examines the potential global economic impact of a collapse in housing prices.
Major economies in Asia-Pacific, Europe and parts of Canada have experienced housing price increases of over 40% since 2010, far outstripping wages and inflation and often supported by dynamic foreign investment into domestic real estate markets.
With a possible reversal of capital flows, this leaves many markets at significant risk of a collapse in housing prices. Countries not experiencing housing price inflation are also potentially at risk from contagion effects of collapse in key end-markets; with the housing price falls translating into declines in total fixed investment and trade flows.
“Given banks’ high mortgage portfolios, a collapse in housing prices would severely impact credit conditions as non-performing loans’ rates would spike up,” says Elisabeth Waelbroeck-Rocha, chief international economist at IHS Markit.
“This would trigger a credit crunch, whose implications could far exceed those of a protectionism-driven trade contraction. Some countries like Australia have already seen a reversal of price trends, but an outright collapse in property prices in key economies could trigger contagion which would severely undermine global growth.”
Leveraging IHS Markit’s proven and comprehensive Global Link Model, covering 68 countries and 95 percent of global GDP, the report details the drivers of the housing price boom, identifies potential causes of a collapse in prices and quantifies the impacts of that downturn to global economies.