BIS: Australia’s 55-year housing bull market longest in the world

By Leith van Onselen

The Bank for International Settlements (BIS) has released a new working paper, entitled “Interest rates and house prices in the United States and around the world”, which attempts to determine how interest rates affect house prices across 47 countries.

The paper’s key finding is that short-term interest rates are “surprisingly important” in determining house prices:

We find a surprisingly important role for short-term interest rates as drivers of house prices, especially outside the United States. We also find that changes in short-term interest rates from up to five years in the past can have a strong influence on changes in house prices today. In addition, we find a strong link between US interest rates and changes in house prices in other countries. Studies that treat housing as a form of investment whose alternative is renting property predict much higher interest rate sensitivity of house prices than those we obtain. However, our estimates are much higher than those that neglect the role of inertia in house prices.

The paper also includes analysis of the size and duration of booms and busts across the 47 countries, and finds that Australia’s bull market has run the longest of all the nation’s sampled:

Another way to appreciate the persistence of house prices is to contrast the length of their upswings and downswings. We define an upswing (downswing) as a period of house price increases (decreases) sustained in an individual country for three years or more. Based on this definition, periods of upswing accounted for nearly 80% of the advanced economy sample. The up swings lasted on average 13 years; with the longest one, in Australia, still continuing after half a century (Table 2 and Appendix Table A1). By contrast, down swings accounted for only 8% of the advanced economy sample; they lasted on average five years, and the longest one, in Japan, lasted 13 years…

Out of the advanced economies sampled, the paper also finds that Australia has experienced the second largest increase in real house prices since 2000, behind New Zealand:

Full report here.