High house prices in countries like Ireland, Britain and Australia raise fears of a housing market bubble that could damage economic growth if it burst, the International Monetary Fund warned today. It added that the Netherlands and Spain were also included in this danger list.
The global recovery is fueling expectations that interest rates are set to rise, focusing attention on housing. The lowest borrowing costs in years has boosted the growth of the property markets and has also helped shore up consumer spending when the world economy stalled in 2001.
The IMF warned its is latest World Economic Outlook that the market could be hit even if the gains look justified on a fundamental basis.
'A house price reversal could still be caused by deteriorating fundamentals, for example higher interest rates, a significant rise in unemployment and slower growth in disposable income,' the IMF warned.
The IMF said a housing market slump delivers a potentially lasting blow to growth because it hits the economy through a range of important channels, with consumer spending top of the list.
'Although asset quality typically deteriorates slowly, financial supervisors should remain vigilant, in light of the relatively large mortgage exposure of banks, still rising house prices and the recent moves towards more speculative mortgage transactions', it said.
