A pattern of weakness is becoming apparent in megacity housing markets around the world. By the end of May, home prices in Sidney had fallen 4.7% year-over-year. In Toronto, the average price of a single family home had fallen 13% since the market’s peak in April of last year. Meanwhile, in February, London saw its first annual decrease in prices in more than eight years, which accelerated in March and April. And in the first quarter of this year, Manhattan saw the median price-per-square foot fall 18% year-over-year.

No doubt, these declines can be attributed to region-specific supply and policy factors, whether newly-implemented government restrictions on foreign investment or Brexit and the U.S. tax reform bill. However, a recent report by the IMF sounds a troubling alarm: “a simultaneous decline in house prices across the globe could lead financial and macroeconomic instability.”

The IMF’s argument is intuitive. Accomodative monetary policy following the Global Financial Crisis drove an unprecedented flood of institutional and individual investor capital into real estate, with cross-border flows concentrating in cosmopolitan megacities. This has dramatically divorced megacity property-appreciation rates from economic fundamentals—primarily the spending power of residents. Moreover, it has made local housing markets far more intertwined with global economic conditions. According to the IMF, 30% of property price movements today can be attributed to global—not local—factors, up from just 10% two decades ago.

Now, with QE transitioning to QT, the IMF’s fear is that a reversal of financial conditions could cause cross-border capital to retreat from housing. Given the synchronicity between global megacities, instability could start anywhere and rapidly spread everywhere. The weakness seen today may not be a harbinger of a crisis anytime soon. However, as the lowest interest rates in history begin to normalize, a basic truth, articulated by Fed Chair Jay Powell last summer, requires increasing attention: “Housing is often found at the heart of financial crises”.

In Vancouver, home and condominium prices are up roughly 60% in just the past three years. In Sydney, house prices jumped over 80% between the end of 2009 and the peak last September. And in Toronto, Stockholm, Munich, London, and Hong Kong, housing rose by 50% on average since 2011. As the IMF writes: “In recent years, the simultaneous growth in house prices in many countries and cities located in advanced and emerging market economies parallels the coordinated run-up seen before the crisis.” The following chart illustrates both how widespread the megacity property boom has been, and the dramatic gap between city and nationwide appreciation in most countries:

Source: The International Monetary Fund

The escalation of cross-border institutional and individual investment in real estate has no doubt played an essential role in fueling megacity property booms. While data on foreign investment in cities is scarce and incomplete, the pattern is clear. According to the National Association of Realtors, U.S. home sales to foreigners surged 49% just between April 2016 and March 2017, reaching a record $153 billion. According to the Canadian government, foreigners now own at least 5% of Vancouver’s housing stock, a number that does not include Canadian immigrants who bought houses with funds from overseas. And according to a study released late last year by the Reserve Bank of Australia, foreign buyers accounted for roughly 25% of all property transactions in New South Wales and Victoria in 2015 and 2016, approximately three-and-a-half times greater than just five years earlier.

The role being played by institutional investors is far easier to track. The IMF charts the escalation of their participation in global real-estate markets since the beginning of 2005:

Source: The International Monetary Fund

In its annual housing report released last September, UBS concluded: “The risk of a real estate bubble in top global cities has increased significantly in the past five years.” The role foreign and institutional money has played in escalating home prices beyond the spending power of the local population was at the heart of the Swiss bank’s concern.

In Hong Kong, it now requires 19.4 times the average salary of a resident to buy a home, up from 4.6 times in 2002. In London, the equivalent price-to-income multiple today is at 16 times. Paris, Singapore, New York, and Tokyo all have multiples greater than 10. The IMF has charted the escalating divergence of real estate and income appreciation globally since 2010:

Source: International Monetary Fund

The key vulnerability is that speculative money is far more prone to rapid flight in the event of a downturn than domestic money, bonded to a megacity by the promise of profit not a job, friends, or family roots. This is one reason synchronicity has increased—foreign and institutional capital has herderd to the same megacity profit opportunities. And it is also a reason the IMF fears the global contagion potential of a regional recession. As its report speculates:

A shock in one country may lead global financial institutions to pull back on mortgage lending in many countries, perhaps to maintain capital requirements. Alternatively, investors experiencing distress in one market may liquidate leveraged housing investments in other countries, possibly to meet margin calls or in anticipation of future redemptions, or may rebalance their portfolios to follow predetermined investment mandates. Or shocks in one country can result in changes to investors’ risk appetite and lead them to increase or withdraw their housing investments from many countries at once.

A popular backlash against unaffordability is already intensifying the risk of megacity downturns. As cities become more expensive, young people are being driven away. According to a report this week by The Financial Times, between 2011 and 2016, the average age of a city resident rose two years in Hong Kong, a full year in London, and eight months in New York. The purge is likely to accelerate. For one, a recent five-county survey by The Mercury News found that 46% of Bay Area residents said they were “likely to move out of the region in the next few years,” up from 40% last year and 34% in 2016.

As discontent grows, political pressure is pushing governments to take action to curb foreign buying. From Ireland to London and Hong Kong, rules have been introduced that make it harder to extend mortgages. British Columbia plans to go much further, already raising the foreign-buyer tax from 15% to 20%, and debating higher taxes on second homes and homes purchased with money from abroad. More and more in megacities across the globe, increasing supply is no longer seen as the sole panacea for skyrocketing home values—immediate restrictions are required that depress prices so city professionals can actually live where they work.

No doubt many megacity markets continue to boom around the globe. Just in the U.S., prices of houses and condos in March surged 6.5% from a year earlier according to the S&P CoreLogic Case-Shiller National Home Price Index, including 5.8% for Boston, 13% for Seattle, 8.6% for Denver, and 3.4% in New York, despite the softening in Manhattan.

However, in the weeks and months to come, if the backlash against unaffordability intensifies at the same time financial conditions tighten, the institutional and individual investor flood could dry up. Cracks that are already apparent in the market today could turn into chasms. In turn, the threat of a megacity meltdown requires greater attention. As Gillian Tett wrote for The Financial Times late last month: “We should keep a close eye on those estate agents’ reports in New York—as well as London or Hong Kong. The Big Apple’s jitters might yet be a canary in the coal-mine.”