Across the rich world, house prices are now starting to fall after years of vertiginous growth. And it is overheated markets, like those in Australia, Canada and Sweden, that are facing some of the sharpest drops. A mortgage binge fuelled by rock-bottom interest rates has left each country with enormous quantities of household debt. As a share of disposable income, such debt sits at 185% in Canada, 202% in Australia and 203% in Sweden. By contrast, debt levels have shrunk in countries that bore the brunt of the last crash, including America, Ireland and Spain (see chart).
Housing busts and recessions that are preceded by this sort of debt build-up tend to be more severe. Excessive leverage makes people more vulnerable to job losses, interest-rate rises and falling house prices, as was demonstrated by America during the Depression and the more recent financial crisis. With central banks now raising rates at the fastest pace in more than four decades, countries drowning in mortgage debt will once again be exposed to nasty consequences.
In Australia, Canada and Sweden home prices have more than doubled since 2007, compared with rises of 50% in Britain and 61% in America. High levels of immigration in all three countries mean that, since the turn of the millennium, population growth has exceeded the average in the oecd, a club of mostly rich countries. In Australia, the population has grown by a third; in Canada, by a quarter; in Sweden, by a sixth. Shrinking households are also pushing up prices. According to the Royal Bank of Canada, a rise in the number of people living alone or with smaller families has increased the number of households in Canada by around 30,000 a year since 2016. Nearly 30% of Canadians now live by themselves.
As a result of skyrocketing prices, Canadian households added a record C$190bn ($150bn) in new mortgage debt last year, more than double the amount in 2019. Meanwhile, Swedes took on an additional 370bn kronor ($40bn) of such debt in June, compared with the same month three years before. Easy credit has also attracted speculators, and inspired people to look for holiday homes. One in six homeowners in Ontario—which includes Toronto, Canada’s most expensive market—now has at least two properties. One in five Swedes owns a summer cabin.