"The severe downturn in house prices can affect macroeconomic performance and financial stability, as was apparent in the 2008 global financial crisis and other historical episodes," the International Monetary Fund (IMF) noted in the Global Financial Stability Report on Thursday (Apr 4) or Friday morning (Indonesian western standard time).
To offer early-warning indicators that can aid in monitoring financial stability, facilitators of global monetary cooperation from 189 nations laid focus on the method to measure downside risks to rise in housing prices.
"The House Prices at Risk can aid in measuring financial stability risk and offer beneficial data for examining the requirements of future policy actions," the report stated.
According to the report containing the IMF's measurement, the lower momentum in housing prices, overvaluation, excessive credit expansion, and tightening financial conditions "predict the risk of a higher decline in housing prices for the next three years."
The report also pointed out that macroprudential policies, including placing tighter limits on loan-to-value ratios and debt-service-to-income ratios, lowered the downside risks to housing prices.
Furthermore, the report indicated that a looser monetary policy also puts housing prices increasingly at risk in the short term in developed nations, while capital inflows concurrently amped up the possibility of high growth in housing prices in the short term and risks of a drop in house prices in the medium term.
"Measures of risky housing prices aid in forecasting the risks of declining GDP growth beyond and above simpler measures of house price imbalances, thereby adding to the early warning model for the financial crisis," the report noted.