House prices in Australia and Canada have outperformed those in the US and UK over the last 10 years, with gains in housing hot spots such as London and New York beaten by lesser-known names Darwin and Winnipeg, according to a study by Toronto-based rating agency DBRS.
The study compared house prices in 50 cities in the UK, US, Canada and Australia, charted in benchmarks that took into account local factors such as inflation.
Canada and Australia held the top 12 spots in the 50-city list, according to the study.
The northern Australian city of Darwin had a cumulative average annual rate of return of 9.6 per cent, and Canada's Winnipeg grew 8 per cent.
Darwin benefited from its status as a trading gateway to Southeast Asia and from nearby offshore petroleum activity, DBRS said.
Housing markets in Australia and Canada fared well through the financial crisis with only minor corrections that lasted a few months.
The study comes at a time of renewed worries about the stability of Canada's housing market. The Bank of Canada said Wednesday that high housing prices and near-record levels of household debt constitute a "significant" risk to financial stability.
Meanwhile, the "US peaked in July 2006 and has yet to recover," it says.
The strongest US performance was from Portland, Ore., which ranked 21st with a return of 2.8 per cent. The UK's top performer was London, in the 13th spot with a 5.1 per cent annual return.
The worst performer among cities charted was Las Vegas, where house prices, measured against the benchmark, dropped more than 60 per cent from peak to trough during the recession. DBRS said four factors were behind the city's poor performance: overbuilding, speculative investment, subprime foreclosures and a weak economy.
DBRS said different government policies have played a key role in the divergence between the four markets.
"Since the financial crisis, the United States government has tightened regulations on banks and other financial institutions, making it more difficult for people to qualify for new mortgages," it says.
"In contrast, more conservative lending practices in Canada, and Australia somewhat sheltered these countries' housing markets from a severe correction," DBRS says.
Housing markets in all four countries face potential corrections if interest rates rise. The way those corrections unfold is likely to vary significantly at the international level, and also between cities in the same country.
The study draws on data drawn from Standard & Poor's Case-Shiller Index in the US, the Australian Bureau of Statistics, the National Bank of Canada/Teranet index in Canada, and the UK Land Registry and Registers of Scotland.