Global economies and real estate markets have become more interdependent in recent decades, creating real estate price synchronization across borders in various countries and major cities. This article surveys existing literature regarding these dynamics of price synchronization as well as some limited implications it might have for international investors looking to diversify their housing portfolios.

Rising house prices could be driven by several factors. A higher correlation between long-term interest rates may reflect increased cross-border portfolio channel effects and international asset diversification trends; as well as more closely linked macroeconomic fundamentals like productivity growth. Policy initiatives to promote global liquidity and capital account openness could also have contributed to stronger correlations in real estate returns.

Although housing markets have become more synchronized over the years, national housing markets still exhibit considerable diversity and heterogeneity. A variety of national-level factors such as land-use planning, financial regulation and tax policies affect property prices while regional economic and demographic influences shape local demand for housing; including differences in income distribution among population structures as well as infrastructure availability as well as cultural influences that might shape home buying decisions.

Synchronization may also be increased by global investors’ growing participation in local housing markets, as seen in Box 3.2. High-net-worth foreign investors appear to prefer investment destinations with large and recognizable city centers – this preference could explain why house price dispersion increases when investor demand for the city’s housing market does too; additionally, global investment platforms that facilitate investments across countries and cities has contributed to an increased synchronization rate in certain countries.

Although global housing market links appear to be contributing to a more synchronized housing market, its effect remains uncertain and whether this trend will prove positive or detrimental in the long run. Indeed, studies have suggested that greater synchronization may increase recession risk in highly connected markets and lead to faster contagion from one country or city to the next.

One related concern is that an increased global housing market may exacerbate household vulnerability to economic shocks, given the vast proportion of assets and liabilities held in real estate by households. Furthermore, house price volatility tends to be larger than other financial assets like stocks or bonds, increasing household exposure to housing as leverage. Therefore, research should focus on understanding how increased links between housing markets may alter risk and vulnerability.