Swedish, Kiwi housing markets at risk of bust

Bloomberg

The Swedish and New Zealand housing markets are the most at risk of a correction among the so-called G-10 economies, according to Goldman Sachs. In a report on house prices in G-10 nations — those with the 10 most-traded currencies in the world — Goldman finds they are most elevated in small, open economies such as Sweden and New Zealand. The investment bank said there is a 35-40% chance of a housing “bust” in each country over the next two years, which it defines as house prices falling five percent or more after adjustment for inflation.
Goldman compares house-price levels across economies using three standard metrics: the ratio of house prices to rent, the ratio of house prices to household income and house prices adjusted for inflation.
“Using an average of these measures, house prices in New Zealand appear the most over-valued, followed by Canada, Sweden, Australia and Norway,” it said. “According to the model, the probability of a housing bust over the next five to eight quarters is the highest in Sweden and New Zealand at 35 to 40 percent.”
A graph in the report shows that New Zealand’s probability of a housing bust is just above 40 percent, while Sweden’s is just above 35 percent. The risk of a bust in Canada is about 30 percent, while in Norway, Australia and Switzerland the probability is assessed at 20-25 percent.