The IMF says falling house prices could put pressure on financial markets as interest rates rise.
Canada and Australia top the list of high-risk countries in the housing market.
The average mortgage rate in advanced economies reached 6.8% at the end of 2022, more than doubling since the start of this year.
Economies with high household debt are vulnerable to the impact of further interest rate hikes by central banks still trying to tame inflation, according to the International Monetary Fund.
The IMF, in a blog post this week, said house prices around the world hit record highs during the COVID pandemic, but those booms have since reversed or price appreciation has slowed. In advanced economies, the deterioration was more pronounced due to stretched valuations before and during the pandemic.
The IMF said falling house prices could put pressure on financial markets as interest rates rise. The average mortgage rate in advanced economies reached 6.8% at the end of 2022, more than doubling since the start of this year.
“Now, if borrowing costs continue to rise or stay high for longer, demand and prices are likely to weaken further,” wrote Nina Biljanovska, an economist at the IMF’s research department.
Canada and Australia top the list of financial institutions of countries with high levels of household debt and a large share of debt issued at floating rates that are now more vulnerable to higher mortgage payments and greater risk of default.
Luxembourg, Norway, Sweden and the Netherlands also ranked well, with the United States just below these countries.
While headline inflation rates around the world have spiked, central banks, including the Federal Reserve, are still far from their inflation targets, even after raising interest rates.
In March, the Organization for Economic Co-operation and Development said inflationary pressures will force many central banks to “keep policy rates high until 2024.”
The Federal Reserve, Bank of Canada and Reserve Bank of Australia are each scheduled to hold monetary policy meetings in the first half of June. Canada’s 3.1% annualized growth in the first quarter was faster than expected, increasing the chances that the central bank will raise its key rate on June 7.
In the United States, the Fed has aggressively raised interest rates from zero percent to 5%-5.25% since March 2022. Mortgage rates have soared since then. The popular 30-year fixed mortgage hit a seven-month high of 6.9% in the week ended May 26, according to the Mortgage Bankers Association.
Federal Reserve officials have recently suggested they may delay a June rate hike but resume rate hikes later, The Wall Street Journal reported.
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