A detailed report by economists at Global Property Guide concerning international house prices in 2007 reveals the good, the bad and the ugly in global house prices . The report confirms that the US housing market crashed, Europe’s housing markets slowed and house prices in Asia-Pacific gained momentum. Closer inspection of the report showed some surprising winners and losers.
Bulgaria saw the world’s strongest house price growth at 30.6% (15.4% in real terms) to end-Q3 2007 from a year earlier.
Shanghai’s red hot housing market continued to rebound, despite efforts by the government to cool the market. House prices rose by 27.85% to end-Oct 2007 from a year earlier; a significant turnaround from 0.6% drop in 2006.
Singapore registered an annual house price increase of 27.6% (24% in real terms) to end-Q3 2007, significantly higher than the 7.6% price increase over the same period in 2006. In real terms, Singapore was the world’s best-performing housing market, given inflation of only 2.66%.
House prices rose by more than 10% year on year (y-o-y) in nominal terms in several developing countries – the Philippines, Colombia, South Africa, and Hong Kong. However, when adjusted for inflation, price increases were generally substantially lower.
In Europe most countries registered unimpressive y-o-y house price changes in 2007, aside from Norway and Estonia.
Property prices in Ireland started falling in 2007, the first time in more than 15 years. The Irish housing market had the biggest and longest house price boom among developed countries in recent memory.
In the US, the Federal Reserve Bank raised its key lending rate 17 times in 24 months during 2004-2006. The US Federal Funds rate rose sharply from its historic low of 1% in May 2004 to 5.25% in June 2006.
As signs of strain on the housing market started to appear in mid-2006, the Fed kept its key rate at 5.25% for 14 months to Aug 2007.
When the US housing market boom turning to a bust, the Fed slashed key rates in September by 50 basis points and in October and December by 25 basis points, bringing the rate down to 4.25%.
The central banks of UK and Canada reduced key lending rates by 25 points in December 2007.
Some would say the Fed raised rates “too much, too soon,” and is now frantically reducing key rates to avoid recession. Others however suggest that weak oversight of US mortgage market lending is the primary cause of the present crisis, in combination with a structural shift toward off-balance sheet lending.
The ECB’s stubbornly slow rate adjustments, in contrast, have allowed the Eurozone’s diverse housing markets to adjust relatively smoothly. Only the most overpriced housing market, Ireland, has actually crashed, while the rest are mostly slowing.
US and Canada
The US housing market continues to weaken.
US home prices dropped 5% y-o-y to October 2007, to an average of US$207,800, based on sales recorded by the National Association of Realtors (NAR) (or 8.46% in real terms).
The Office of the Federal Housing Enterprise Oversight (OFHEO), which produces an arguably more widely-based index, saw prices rising 1.8% to end Q3 2007 from a year earlier, which translates to a fall of 0.6% when adjusted for inflation. 10 states in the OFHEO index experienced price falls, including Michigan (3.7%), California (3.6%), Nevada (2.4%), Massachusetts (2.3%), Rhode Island (2.2% and Florida (2.1%). Only two states registered house price growth of more than 10% y-o-y to end Q3 2007, Utah (12.9%) and Wyoming (11.8%).
Canada’s housing markets are also showing signs of slowing. The new housing price index rose 6.1% to end-Oct 2007 from a year earlier (3.7% in real terms), lower than the 11.4% (10.3% in real terms) y-o-y price rise to Oct 2006.
Europe
Most European housing markets slowed. Ireland’s house price plunge continued, with a 4.68% y-o-y drop to October 2007. When adjusted for inflation, the drop is more pronounced at 9.1%. The Irish housing market is vulnerable to interest rate changes, as 85% of mortgages are variable rate.
The Baltics performed quite well in terms of house price changes from a year earlier, but the latest quarterly data presents a picture of a region whose housing markets are in trouble.
In Latvia apartment prices have dropped by 7.7% to September 2007, over a quarter earlier. Lithuania’s apartment prices have stagnated at LTL 12,500 (US$5,213 or €3,620) per sq. m. in the last two quarters. In Estonia quarterly house prices increased by 23.4% y-o-y to Q3 2007, lower than the 28.6% growth to end-2006.
Norway’s housing markets are showing signs of nervousness, despite a strong performance this year. The house price index for the entire country increased 11.6% y-o-y to Q3 2007 (11.9% in real terms due to slight deflation). However, prices in the metropolitan area of Oslo-Baerum fell 0.5% from Q2 to Q3 2007. The housing market is facing more uncertainties as the Norges Bank raised its key policy rate by 25 basis points to 5.25% in December 2007.
Spain recorded 5.31% y-o-y house price growth to Q3 2007, the lowest rate of increase in nine years. Higher interest rates have dampened demand, and banks have become very careful in granting housing loans.
A slow down was also evident in the UK, though less sharp than expected. British house prices increased 9.7% y-o-y to Q3 2007, less than 2006’s y-o-y increase of 10.5%. When adjusted for inflation, the house price increase in Q3 2007 was 7.5%, slightly higher than the 7.3% rise in 2006.
House prices in Italy and Greece have also cooled. Mortgages in these markets are predominantly based on variable interest rates.
Although mortgages in Denmark, France and Germany are mostly based on fixed interest rates, their housing markets have nevertheless cooled. Other European countries which experienced house price slow downs are Sweden, Poland, Finland, Netherlands and Switzerland. France has increased tax deductions on mortgage-loan interest rates, a measure expected to hold housing demand firm.
Asia
Housing markets in several Asian countries gained momentum during the first three quarters of 2007, reflecting to some extent continued recovery from the 1997 Asian Crisis.
The strong house price increases in Singapore, South Korea, and Japan have been mainly due to strong economic growth. Mortgage markets in Asia are generally underdeveloped. Hence the effect of interest rate movements on the housing market is indirect, channelled through over-all economic performance. With electronic goods as the main export of these countries, economic growth is expected to drop if the global economic recession occurs in 2008.
In the Philippines, demand for houses and condominiums has come mainly from families of Overseas Filipinos.
Price increases in China are subject to strong government intervention. Left unhampered, property prices would be expected to rise due to continued economic expansion and rapid urbanization. Adding fuel to the price boom are the Beijing Olympics in 2008 and World Expo in 2010 in Shanghai.
In Thailand, political problems have led to weak economic growth and falling property prices. Property price changes in Indonesia and Malaysia remain unimpressive. Although the national house price index in Indonesia was up 5.2% in nominal terms to end Q-3 2007, the index actually dipped by 1.2% in when adjusted to inflation. In Malaysia, the
house price index rose 3.2% (1.7% in real terms) to Q2-2007 from a year earlier.
Pacific
Property prices in Australia continue to recover from the housing market slowdown during 2004 to 2005. The house price index for eight capital cities rose by 10.6% to Sept 2007 from a year earlier, slightly higher than the 10.1% annual increase in Sept 2006. Except for Sydney and Perth, Australia’s other major cities all registered house price increases of more than 11% y-o-y to Sept 2007.
The availability of housing finance combined with lack of supply fuelled house price increases in 2007, despite rising interest rates. Population growth from immigration and the skills shortage in the construction sector also contributed to higher prices.
Double-digit house price increases are expected to persist in 2008 in Australia.
No drastic changes in immigration policy are expected, now that the Labour Party is in power, and new schemes to assist low income renters and house buyers are likely to increase demand for housing units.
Signs that New Zealand’s house price boom is coming to an end appeared in the second half of 2007. Although the national median house price rose 6.6% y-o-y to NZ$352,000 in Nov 2007, this was the lowest annual house price increase since Feb 2003.
The Reserve Bank of New Zealand (RBNZ) has raised its benchmark interest rate four times between March and July 2007 to 8.25%. The market downturn is expected to continue in 2008, and is expected to last until 2009.
Middle East and Africa
The depreciation of the US dollar against major currencies could be beneficial for the Middle East’s property markets. As the currencies of Gulf Cooperation Countries (GCC) are pegged to the US dollar, their property markets are getting cheaper as the US dollar depreciates – while everyone expects their currencies eventually to be revalued against the US dollar.
In South Africa, the house price boom is coming to a halt. Annual house price growth peaked at 33% to end-2004. Since then, house price growth started decelerating, and was down to 13.6% y-o-y to end-Oct 2007. Adjusted for inflation, the house price index rose by only 5.3%. The slowdown was due to higher interest rates, lower economic growth, and to The National Credit Act, implemented June 2007, which imposed stricter rules on lending.
Israel’s market is showing signs of recovery. The average price of owner-occupied dwellings rose 4.6% (2.5% in real terms) to Q3 2007 from the previous quarter. However, it is still 0.5% (1.9% in real terms) lower than its level in Q3 2006.
Source:
Economics Team:
Prince Christian Cruz, Senior Economist
Phone: (+632) 750 0560
Cell: (+63) 917 735 2228
Phone: (+632) 750 0560
Cell: (+63) 917 735 2228
