Inside Money: A house too far - IMF puts world on watch

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Property prices are usually considered less volatile than most other assets. (And, in NZ at least, those prices are believed by many to only ever travel smoothly in one direction.)

But as any equity manager, or anyone who dabbles in assets priced at intervals of a day or less, will tell you, the apparent lack of house price volatility is partly related to the frequency of measurement.

If house prices were subject to valuation at high-frequency share-trading speeds, home-owners would be able to worry, or boast, without interruption.

As it is, the monthly housing data that does come out is confusing enough: prices are going up or down, depending on who you listen to or where you are.

Even the International Monetary Fund (IMF) admits that reliable housing data is hard to come by. In a note accompanying its new global housing index released last week, research adviser, Prakash Loungani, said the research was "an initiative, not the end point".

"We are hoping that over time the data will improve," Loungani said. "For example, IMF country teams may look at our Index and let us know of a better source of information for their country. What we have done is a good first pass at pulling together statistics, but eventually countries may point us to better housing statistics."

New Zealand figures as a top-performer in those statistics: second-highest house price to rent ratio, behind Canada; third-highest annual price increase - beaten out by Hong Kong and the Philippines, and; fourth-highest in the house price to income category.

Should New Zealand be worried?

In his blog celebrating the new Global House Price Watch, IMF deputy head, Min Zhu, warns that "our research indicates that boom-bust patterns in house prices preceded more than two-thirds of the recent 50 systemic banking crises".

However, Zhu also says it's difficult to correctly identify the early warning signs.

"First, assessing when house prices are out of line with economic fundamentals is as much art as science," he says. "Second, the policy toolkit to manage housing cycles is still under construction."

Loungani refers to the housing policy tools under the advertising-, or child-, friendly slogan, "Mip-Map-Mop", short for:

• microprudential (Mip) policies look at an individual bank's balance sheet, for example to determine if it is making too many real estate loans;
• macroprudential regulations (Map), operating at the level of the financial sector as a whole, come into play; and
• monetary policy (Mop).

Zhu urges everyone to get on the Mip-Map-Mop bandwagon, which NZ surely has, despite the experimental nature of the methods and concerns about data.

"The interlocking use of multiple tools might overcome the shortcomings of any single policy tool," he says. "We need to move from 'benign neglect' to an 'all of the above' approach when it comes to policy choices."