OECD Warns Against Rise in Real Estate Prices

The economy is expected to continue to increase by 2.4% this year but the OECD continues to warn about the rising home prices in Canada and other international real estate markets including Australia, Sweden and the UK.

The Canadian economy is expected to grow alongside the United States and surpass other Group of Seven countries but the OECD is worried at the rate sales prices continue to soar in the country, hibusiness quoted the OECD report as saying.

Several real estate markets are seeing their average sale prices increase with most of these markets going through a lack of supply amid high demand from investors.

Canada’s economy is however projected to improve from its low figures last year. The increase towards the economy will most likely come from fiscal initiatives, export-market growth and also a reduction in commodity-related investment.

The OECD recently warned of a “significant” rout in Australian house prices, in a market correction that could spell economic gloom.

In an otherwise positive assessment of the nation’s economy, the OECD noted in its biennial survey that house prices have increased by 250% in real terms since the 1990s—and that a downturn could cut household consumption and lead to mortgage defaults. “House prices and household debt have reached unprecedented highs,” the report said.

Meanwhile, New Zealand has some of the largest and most overpriced houses anywhere in the world. Since 1990 house prices have increased faster in New Zealand than in all the other OECD (“rich”) countries. Prices have increased 3.2 times in real (inflation-adjusted) terms. This is 25% more than Ireland, which ranks second.

New Zealand started at a low base in 1990. But if other basics in life, like food or cars or telephones had increased threefold in price in 25 years, there would be more than just talking happening. It’s not just the price of houses, however. The size of new houses has also gone up substantially.

In 1990, the average new house was just 125 square meters. Nowadays it is 195 square meters. This is still a bit smaller than Australia, where the average is a bit over 220 square meters, or the United States where new single dwellings average 250 square meters. But the size of new houses has increased faster in New Zealand since 1990 than in either Australia or the United States.

Economic Outlook

In the OECD’s Interim Economic Outlook, several of the world’s leading economies had their economy estimates increased but the world economic estimate was maintained at 3.3% which is a bit higher than last year which was 3%.

The main reason for this increase is that the global confidence level has increased yet; consumption, investment, trade and productivity are still to improve.

But the Paris-based organization continues to show concern over the rapid home sale prices in countries including Canada, Australia, Sweden and the UK.

The group suggested that an increasing rise of home prices only projects a sharp decline in the economy is a given time. Because the high home prices will definitely at some point in time cool down and it will have very serious implications.

The OECD follows the economic trend of 35 countries around the world including China, India, Brazil and Canada.

The global economic growth in 2017-18 is boosted by continual and expected fiscal efforts and the leaders of the economic growth projected for the year will be the US and Canada with Germany expected to be the next highest G7 country with 8% GDP growth.

The global economy in 2018 is projected to be around 3.6% with the US and Canada having a 2.8% and 2.2% growth increase respectively.

Although the OECD’s reports for Canada’s economic growth for 2016 might be about 1.2%, a recent figure indicates a 1.4% growth instead in accordance with Statistics Canada figures released last week.