Credit rating agency Moody’s has pointed to historically low interest rates, limited housing supply and population growth as the main factors of house price surges in countries like Australia and the UK.
Moody’s also warned of a correction in some property markets across the globe, claiming that interest rates won’t always be at their lowest point. The agency said even the Chinese property market is at risk due to the oversupply of real estate.
Moody’s also studied the implication of house price crashes on the GDP in a number of countries since 1973, the Financial Times reported.
In the study, Moody’s found that in “nominal terms, house price crashes tend to be smaller than commodity and equity price downturns, although they tend to last longer. From peak to trough, house prices tend to fall on average 16% in nominal terms and the downturn lasts two years”.
The agency added that by comparison, commodity and equity prices fall by around 50% and lasts for about a year.
However, Moody’s also found that when adjusting for inflation, “the average fall in house prices in real terms during a crash is about 26% while a downturn can last around four years”. It can also extend up to six years, the agency warned.
This means an estimate of 10% fall for every house price levels is equal to a 4% drop in GDP, Moody’s claimed for advanced economies.