Home Values and Household Debt Present Global Risks
Along with the unprecedented boom in house prices across the developed world, there was also a rise in household debt. A new research report “House Prices and Household Debt – Where are the Risks?” released by Fitch Ratings, examines economies that appear most vulnerable to shocks to interest rates, income and asset prices, due to their overvalued housing and overstretched households.
Fitch ranked a sample of countries by the degree of estimated house price overvaluation and household balance sheet exposure to interest rate risk, compiling an overall index of vulnerability, using a range of financial indicators.
New Zealand, Denmark, the UK and Norway were found to be most at risk from house price adjustment and household balance sheet deterioration, while Japan, Germany and Italy were the least vulnerable to this scenario.
The research report looked at:
- Real house prices over the past decade, including supply side influences and the role of interest rates
- The household balance sheet and the relationship between household borrowing relative to disposable income and house price inflation
- What caused the increase in debt and whether or not households are currently overstretched
- The financial risks and macroeconomic implications of a combination of weakening property prices and rising interest rates
Fitch concludes the report with a detailed description of the methodology used to create this ranking which highlights where the risks of a housing market adjustment are greatest and where the household sector is most vulnerable from a balance sheet perspective.
You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.