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Investment Analysis

Global housing market downturn gathering pace

by GLOBAL PROPERTY GUIDE

Feb 28, 2012


The world's housing downturn is gathering momentum, according to the latest world-wide survey of house price indices prepared by the Global Property Guide.

During 2011, house prices fell in 22 countries, of the 35 countries for which Q4 house price statistics are available, and rose in only 13 countries.

Similarly, 21 housing markets performed worse during 2011 than last year, while only 14 countries performed better.

The figures for the 4th quarter of 2011 are somewhat worrying, with quarterly price rises in only 10 countries, but price falls in 25 countries. On the other hand, the apparent trend towards recovery in the US is positive.


Source: Various series, data descriptions and sources here

The slow pace of the global economic recovery, strengthening sovereign debt concerns, weak consumer confidence and high unemployment all continue to weigh on residential property markets.

The Global Property Guide's statistical presentation uses price-changes after inflation, giving a more realistic picture than the more upbeat nominal figures usually preferred by real estate agents.

India and Brazil: world's strongest housing markets

India and Brazil seem unstoppable, and remain the best performing housing markets in the world.


Source: Various series, data descriptions and sources here

In 2011, house prices in Delhi soared 25.26%, with a rise of 6.62% during the latest quarter. Yet demand is still expected to pick up, because the Reserve Bank of India (RBI), in its Q3 review of Macroeconomic and Monetary Developments, signaled a pause in monetary policy tightening, in order to fuel economic growth.

The world's second strongest house price rise occurred in Sao Paulo, Brazil, where house prices surged by 19.79% in 2011. Good weather, relatively inexpensive cost of living and strong capital appreciation are some of the reasons why Brazil is seen as a good choice for property investment. During the 4th quarter, house prices rose by 3.93%.

European housing markets still heading down

Most countries whose housing markets experienced accelerated downturns in 2011 are located in Europe, including Finland (-2.22% down in 2011), United Kingdom (-3.39%), Sweden (-5.29%), Netherlands (-5.77%), Slovak Republic (-6.88%), Portugal (-7.78%), Spain (-9.27%), Athens, Greece (-10.43%), and Warsaw, Poland (-10.55%).

Unhappy Ireland still holds the title of world's weakest housing market', with house prices plummeting by 18.08% in 2011. With low transactions, constrained mortgage lending, and an uncertain economic environment, Irish house prices are likely to continue falling in 2012.

European countries which saw smaller house price falls this year than the previous year include Turkey (-1.73%), Croatia (-3.26%), Lithuania (-4.21%) and Bulgaria (-8.99%).

However, several European countries actually enjoyed house price rises in 2011. The highest house price climb in Europe was in Tallinn, Estonia, whose property market has been recovering since the second half of 2010. Over the past twelve months, house prices in Tallinn rose 8.36%.

Other strong European housing markets in 2011 included Norway (+7.01%) and Switzerland (+4.90%).

Housing markets in the Ukraine and Iceland finally bounced back in the final quarter of 2011. In Kiev, apartment prices climbed by 5.29% (in nominal terms) from a year earlier, after falling 9.47% the previous year. Likewise, house prices in Iceland rose 1.84% year-on-year, after falling 4.18% the previous year.

In Germany and Latvia (Riga), housing markets had modest increases in 2011, with 1.53% and 0.53% rises, respectively.

House price boom in Asia now over

Almost all Asian housing markets in the survey performed more poorly in 2011, than during the previous year.

House prices in Hong Kong were up 5.32% on the year, after rising 18.87% the previous year. House prices in Singapore rose a mere 0.28%, after a rise of 13.06% the previous year. In both Hong Kong and Singapore there were price-falls in the final quarter of 2011, as a result of cooling measures, coupled with the uncertainties in the global economy. Hong Kong house prices fell 5.24% during the quarter, and Singapore house prices fell 0.67%.

During 2011, house prices in Taiwan fell 8.74%, after rising 9.70% the previous year. China (Shanghai) and Japan (Tokyo) had lesser declines at 3.23% and 3.69%, respectively. House prices may continue to fall in the coming months, for at least as long as the tightening policies remain in place.

However, housing markets in South Korea and Indonesia (14 cities) improved from a year earlier with price rises of 2.94% and 0.89%, respectively.

US housing market showing signs of life

During 2011, house prices in the United States fell 5.54% year-on-year, according to the Federal Housing Finance Agency's (FHFA) seasonally adjusted purchase-only house price index (note that our figures are inflation-adjusted, so they do not mirror the headline figures released by the FHFA). In the final quarter, house prices rose 0.06%, the first quarterly rise over the past two years.

However, the house price index rose in the last quarter in 27 states and the District of Columbia. When coupled with the fact that about half of all U.S. states saw price increases in the latest quarter, this growth adds to mounting evidence that real estate markets are seeing at least some signs of life, says FHFA Principal Economist Andrew Leventis.

The housing market has been one of the weakest parts of the U.S. economy, but there are signs that it is starting to recover after a price collapse that began 5 and a half years ago. In 2011, about 4.26 million homes were sold, up 1.7% from 4.19 million in 2010.

Cooling in the Middle East

House prices in Israel have continued to fall in the final quarter of 2011, with a 3.60% year-on-year decline.

The wave of social protest that arose last summer, along with global economic uncertainty, and the steps taken and statements made by the government and the Bank of Israel have been the most influential factors that led to the current slowdown in residential real estate, according to Ministry of Justice head government assessor Tal Alderoti.

Patchy progress for Pacific housing markets

In New Zealand, median house prices were down 0.01% during 2011, the modest house price fall since the second half of 2010. Yet during the 4th quarter, house prices rose 3.36%. December has been a strong month for real estate sales, with the strongest transaction figures since 2007. Auckland had its strongest December since 2006, says REINZ Chief Executive Helen O'Sullivan.

In 2011, house prices in Australia were weak, slumping by 7.70%. However, the decline in the housing market is nothing like as severe as that in the United States or United Kingdom.

Comments

#1 DAVID | February 25, 2012

The market is Israel is in a very bad situation, it's just frozen. Companies that bought lands in unrealistic prices now can't sell apartments while the prices are going down sharply. The banks are starting to get nervous themselves, you can tell because they are now doing these sales conventions for many companies together with significant discounts of up to 20%, which is something we had never seen before. Now the central bank is trying to lower interest rates but it is not helping and the market keeps falling. In addition to all that the Israeli tax authorities are now cooperation with the US and European tax authorities to discover foreigners who bought houses in Israel as a money laundering, so no foreigner is buying houses in Israel now and just selling and as you can see the Israeli Shekel is weakening drastically in the past few months. Add all this to the possible strike in Iran, the situation in Egypt and Syria and the rockets that are falling every day in the south and you can understand why nobody wants to buy houses in Israel now.

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