Every bubble begins as a boom, but not every boom becomes a bubble–only the ones that go bust do. The trick is figuring out which booms have gotten so vertiginous that a bust is almost inevitable. That is, calculating where prices have gotten so unmoored from the fundamentals that, like all things that can’t go on forever, it will eventually stop–and correct.
The IMF has tried to do just that with its latest report on global housing prices. And, as you can see in the chart below, Canada, New Zealand, and Norway’s housing markets are all looking seriously frothy, with price-to-rent ratios between 86 and 66 percent above their historic averages.
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