Massive monetary stimulus from central banks and governments stepping in with fiscal support have driven house prices higher around the world.

Covid-19 has pushed the global economy into the worst downturn since the Great Depression, says The Economist. During the 2008 crisis, real house prices fell by 10%, and similar pain was expected this time. Yet house prices in developed countries rose by 5% in the second quarter. In Germany, they were up by an annual 11% in August.

There are two main causes. Firstly, massive monetary stimulus from central banks has kept borrowing costs low. At the beginning of the year a 30-year fixed-rate mortgage in America carried a 3.7% annual interest rate. Today the rate is 2.9%.

Secondly, governments have stepped in with massive fiscal support. Thanks to furlough schemes and other measures, household disposable income in the G7 was “about $100bn higher” than “before the pandemic” in the second quarter. Elsewhere, such as in Spain and Japan, governments have suspended mortgage repayments and eased repayment terms respectively.

The boom is also being driven by a shortage of homes, says Nicole Friedman in The Wall Street Journal. In the US, the number of single-family homes for sale in July hit its lowest level for the month since records began in 1982. New home construction in the country has never regained its mid-2000s highs, and that structural problem is being aggravated by homeowners reluctant to move, owing to economic anxiety and fear of being infected with the virus by visiting buyers.

The most overpriced markets

Hong Kong remains the world’s most unaffordable major city. The latest UBS Global Real Estate Bubble Index, which monitors rent-to-income levels and “excessive lending”, reports that it would take 20 years for a skilled service worker in the city to save enough money to acquire a 650-square-foot apartment. The equivalent figure for London is about 15 years.

The average cost of a residential property in Hong Kong is a “staggering $1.23m”, notes Jason Hung in The Diplomat. Yet the city is becoming slightly more affordable as foreign investors pull back in response to the new national security law. Home rents fell by an annual 9.2% in August and commercial property has slipped by 30% over the past 12 months.

The UBS index shows that many European cities are overvalued, writes Diana Olick for CNBC. Munich and Frankfurt top the bubble list, while Paris and Amsterdam also look frothy. Beyond Europe, Toronto and Hong Kong are at risk of a real-estate bubble. London, Tokyo and New York are overvalued but not in bubble territory, while Chicago looks undervalued. Rents are falling in most cities, says Mark Haefele of UBS Global Wealth Management, so a “correction phase” for property prices in the world’s great metropolises could be looming.