The Unassuming Economist

From Global Housing Watch Newsletter: June 2015

Global house prices remain “two-tiered”, says Global Property Guide. The “two-tiered” is reflected in house price increases in Europe and North America, while there is a sharp slowdown in Asia and the Middle East.

Looking in more detail, during the first quarter of this year, “house prices rose in 31 out of the 45 world’s housing markets (…). [Also,] only 21 housing markets showed stronger upward momentum, while 24 housing markets showed weaker momentum. Momentum is a measure of the “change in the change”; simply put, momentum has increased if a property market has risen faster this year than last (or fallen less)”, according to the analysis done by Global Property Guide.

The “two-tiered” view is also seen in the performance of house prices in advanced vs. emerging markets. Analysis by Scotiabank says that there is positive momentum in most housing markets internationally. However, momentum in general favours advanced nations over emerging markets.

Moreover, Knight Frank says that “Aside from Turkey, emerging markets have seen prices enter a period of flat or low growth since mid-2014 (…). The BRIC nations recorded annual price growth of 3% on average in the 12 months to March 2016, while four years ago this figure was closer to 11%. Capital flight, currency shifts (partly due to the US rate rise), volatile equity markets and slowing wages are hampering demand.”

Developments by region

Asia and the Pacific: House prices are weakening in Asia, except China. House prices rose in China, Japan, Korea, Philippines, Thailand, and Vietnam. Meanwhile house prices are falling in Hong Kong, Indonesia, Mongolia, Singapore, and Taiwan (Global Property Guide). “China’s housing recovery is broadening, with roughly two-thirds of major centres reporting annual price growth through April. However, authorities face a tough policy balancing act in their attempt to cool skyrocketing prices in top-tier cities while at the same time support the nascent recovery in oversupplied smaller centres”, according to Scotiabank.

Europe: In Europe, house price booms continue. Six of the ten strongest housing markets in the global survey are in Europe. Overall, house prices rose in 18 of the 22 European housing markets (Global Property Guide). However, conditions remain uneven, with strengthening labour markets supporting solid price gains in some member countries, notably Ireland, Spain and Germany, while other markets, including France and Italy, continue to languish alongside a more tepid economic recovery (Scotiabank). Separately, the National Association of Home Builders (NAHB) has looked into the impact of negative rates on housing markets in the Euro area. It finds that “(…) the balance of evidence to date suggests that a slightly negative policy rate has supported mortgage lending.”

On the UK EU referendum result, “For both residential and commercial property, there will be short-term market volatility. Potentially, and in selective instances, pricing could come under pressure (…) However, for both residential and commercial property, the long term market dynamics remain unchanged. Low supply will continue to be a day-to-day market reality”, says Knight Frank. Meanwhile, the Financial Times reports that on one end, buyers are pulling out of purchases amid house price and job security fears, while at the other end, overseas buyers race to secure London property bargains. Other experts have looked into what Brexit means for the U.S. housing market (Capital Economics, Housing Wire, NAHB, Trulia, and Washington Post).

Middle East and Central Asia: housing markets are weakening. All of the three Middle Eastern housing markets included in the survey performed worse in Q1 2016 than the previous year (Global Property Guide).

Western Hemisphere: North America’s housing markets remain healthy. The US housing market has now regained enough momentum to provide an engine of growth for the US economy, according to the latest The State of the Nation’s Housing report by Harvard Joint Center for Housing Studies. Meanwhile, Latin America’s housing markets are mixed. Brazil’s housing market remains depressed, while Mexico’s housing market grew stronger (Global Property Guide).

Developments in prime residential markets

Prime residential prices are moderating. Prime residential prices across the 35 cities increased on average by 3.6 percent in the 12 months to March 2016, according to analysis done by Knight Frank. Knight Frank’s narrative of overall moderate growth in prime residential prices is also in line with the view of Scotiabank. “Sales of high-end luxury properties have cooled in a number of large markets over the past year, including New York, Hong Kong and London”, says Scotiabank.

What explains the slowdown in prime residential prices? Scotiabank says that the “softening in demand mirrors the economic slowdowns in China and the Middle East, and deep recessions in Russia and Brazil, all key source markets of luxury foreign buyers.” Meanwhile, Knight Frank adds that “new regulation in the form of measures to improve transparency, new taxes or fees for foreign buyers are increasing in number. However, the impact on the market of such measures is largely dependent on market fundamentals and where each market is in relation to its property market cycle.”