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The end of the global house price boom

Global Property Guide

Last Updated: Jul 09, 2008

Weighed down by the credit crunch and high inflation, the global house price boom has ended, according to our latest survey of house price indicators.

Only 13 countries in which dwelling price indices are regularly published saw prices rise during the year to end Q1 2008, while 21 countries saw dwelling prices fall in real terms, i.e., after adjusting for inflation.

In most countries where house prices are not falling, they are clearly losing momentum.

The biggest house price fall was in Latvia (Riga), down -38.2% by May 2008 from a year earlier, after adjusting for inflation.

US prices also fell during the year to end of Q1, by anything from -4.2% to -18.1%, after inflation, depending on which index is used.

In Europe, significant real house price falls took place during the year to end-Q1 2008 in Ireland (- 13.2%), Luxembourg (-5.8%), Portugal (-4.3%) and Malta (-4.9%).

UK house prices were only slightly down at end-Q1 from a year earlier, the house price crash having begun in earnest in early 2008. House prices fell during the first quarter by between - 0.7% to -2.1% (inflation-adjusted), depending on the index used.

In Japan, the housing market is now losing momentum once again. The urban land price index for 6 major cities was up only 4.1% year-on-year (y-o-y) to H1 2008 in nominal terms (2.9% after inflation), down from 7.8% over the same period in 2007 (7.9% after inflation). The national index for Japan fell by 0.7% y-o-y to H1 2008 (-1.9% after inflation).

Inflation woes

In nominal terms, 28 countries saw their housing prices rise during the year to end-Q1 2008, while only 6 saw prices fall.

However when property prices are adjusted for inflation, the picture looks entirely different. Skyrocketing oil, food and commodity prices have pushed inflation up around the world.

In Ukraine for instance, nominal house price growth was sharply down from 79.5% in the year to Q1 2007, to 18.2% in the year to Q1 2008. But when adjusted for inflation, property prices actually fell by -6.4% y-o-y.

In real terms, property prices fell y-o-y to end-Q1 2008 in Norway, Spain, Greece, South Korea, New Zealand, Indonesia, South Africa, Israel, Estonia and Lithuania, despite nominal price rises in all these countries.

House-price booms elsewhere

On the other hand, strong house prices increases were observed in a handful of emerging economies. Ahead of the pack was China (Shanghai), with an enormous 40.5% nominal house price surge during the year to the end of Q1 2008.

Other countries with impressive nominal house price increases y-o-y to end-Q1 2008 were Bulgaria (31.6% y-o-y), Hong Kong (31.1% y-o-y), and Singapore (29.8% y-o-y). Strong house price gains also took place in Cyprus, Australia and Taiwan.

Again, when adjusted for inflation, many of these price rises look much less impressive. The world’s top-performing housing market (after inflation) was not China or Hong Kong or Singapore, but Slovakia, where real house prices rose by 29.3%.

Causes of the downturn

There were arguably three main factors behind the end of the housing boom:

After a very long boom, house prices had become stretched in many countries. The main indicator of this is the price/rent ratio, which compares the relationship between the buying price of a dwelling, with its rental price.

As the boom progressed, buying prices become high (in relation to rents and financing costs) in many countries, leading to decisions by some buyers to rent instead of buying. Mortgage-holders also came under extreme pressure as interest rates rose. A key lesson is the critical importance of monitoring price/rent ratios, to ensure that house prices valuations stay within reasonable limits. (Declaration of interest: The Global Property Guide produces comprehensive price/rent ratio estimates, globally).

Inflationary pressures forced central banks to raise interest rates. This particularly impacted European countries where mortgage loans were primarily made on variable interest rate terms. Countries with heavily indebted households are also vulnerable when interest rates increase. In developing countries, the overall economy (which strongly sways the mood of the housing market) is sometimes very sensitive to interest rate changes or to direct intervention by the monetary authorities. In some countries, mere threats of interest rate hikes are enough to shake the stock market and scare away foreign investors. But conversely, developing countries typically have smaller mortgage markets, reducing the impact on housing markets.
Unsound regulatory and banking practices in the US and elsewhere led to over-lending by mortgage providers which, when these unsound loans began to go bad, caused a financial crisis. The bad news spread both by a panic contagion effect, and because many banks outside the US turned out to be more exposed than initially expected.

Prospects

Inflation remains an extremely challenging problem for the world’s central banks. In addition, the financial shocks to the world’s banking systems resulting from house price falls remain to be worked through (historically, most banking system collapses around the world have been caused by falling house prices).

Until these financial systems feel more confident that their problems are behind them, loan volumes are likely to fall. Therefore, it seems likely that the world’s house price momentum will continue to go down.

Your Comments

posted by Ivailo | 2008-06-23

Analyst, Bulgaria

The foreign investors are running away from Bulgaria and the prices are already flat. Ask any of the thousands UK investors about it...

posted by david barker | 2008-06-27

economist, eatsbourne

WE have expertienced a massive property boom fuelled by cheap credit lent on lax terms. Like all bubble it had to burst. No reality in the prices when compared to supply and earnings. The credit crisis for me is a symptom of the asset bubble bursting not the cause.

posted by our Editor: Matthew Pollock | 2008-06-27

I would agree

posted by Yiannos Ioannou | 2008-06-27

Property Developer, Cyprus

It makes me laugh when I see these figures for Cyprus. Everyone on the island knows that the market has been stagnant and may even be falling since summer 2007. The Cyprus figures are supplied by BuySell, who are the island's largest estate agents ! There are NO others available ! Of course they will say that prices are rising !

posted by our Editor: Matthew Pollock | 2008-06-27

We have had another complaint about these Buy/Sell statistics from a local organization, so I will urgently follow this up,

posted by Charles Turner | 2008-06-27

Manufacture, Kingston upon Thames

Why are countries like Malta included yet large countries with a population of 39 million excluded from the survey.Poland in particular bridges the olda east and west Europe and is having a major effect on the neighbouring economies, especially when you consider you can drive from Poland to the centre of Berlin in less that 90 minutes.

posted by our Editor: Matthew Pollock | 2008-06-27

It is a question of what statistics are available, that is all. For most of the world's countries, there are no statistics for dwelling prices.

posted by Richard | 2008-06-28

Property investor, UK

Any idea about the situation in Hungary / Budapest?

posted by AlanAlan | 2008-06-29

Real Estate, Ireland

Bulgarian prices have been flat/losing money for years. Some people sold for less in good locations in Bulgaria even after holding for 5 years. Reexamine your statistic for Bulgaria.

posted by our Editor: Matthew Pollock | 2008-06-29

What can we do, these are the official statistics. The National Statistical Institute releases a quarterly average market price of dwellings by district. This time-series covers old flats only.

posted by JD 23 | 2008-07-02

Director, Budapest, Hungary

Residential property is absolutely flat in Hungary and is still on the way down. All listed prices are over valued as the real estate agents are attempting to hold them high. You can expect to get a discount 10-20% off the list price. As for the rental market it is dismal - with flats being empty for close to 6-12 months and there are estimates that there are over 40,000 empty flats in the centrum that no one mentions in the media. Rents can be discounted up to 30-50% of list if you bargin hard.My advice is if you want to buy in Hungary as it's per sqm cost is alot less then some other captials in CEE - spent alot of time on the ground and aim at the 50 sqm size apartments. Fits the rent profile of a professional hungary on good local salary.The latest link:http://www.bbj.hu/news/news_40908_supply+higher+than+demand+in+budapest+market.html

posted by julian dodds | 2008-07-03

Investor / Landlord, london

why do you say that?

posted by Sukdershan | 2008-07-03

Healthcare, Malacca, Malaysia

Your team is doing a fine job. Keep up the GOOD work Sir.

posted by Patrick J | 2008-07-03

ENGINEER, DUBLIN

anybody know how the bulgaria ski property prices are holding up?

posted by julian dodds | 2008-07-03

investor, london

I'm surprised Germany is not present. I came across a site which publishes data for Germany. I'm afraid I cannot recall it but it was compiled by an organisation that either funds 40% of all mortgages in Germany or compiles data from brokers who organise 40% of the mortgages. Perhaps you can find the site. From memory it showed a 7% decline in value of appartments when I looked at it about 3 months ago..

posted by our Editor: Matthew Pollock | 2008-07-03

No, you cannot be right.

posted by Rafael Nadales | 2008-07-04

Investor, Spain

Prices in Hungary are still increasing, despite the global economy downturn. I think the rental demand in Budapest is amongh the strogest ones in Europe and yields are still quite high compared to other European cities.

posted by dylan | 2008-07-04

Real Estate, Ireland

In reference to Alan's comment- Prices in Bulgaria are still rising due the the boom in apartment prices for the local market in the Capital Sofia, which offsets the losses being make on coastal property bought by holiday makers and unsophisticated investors.

posted by joe murphy | 2008-07-05

construction, toronto

more of a question any opinions on the thai real estate market and how it is doing since the new government took over and foreign ownership rights as well as housing prices would be appreciated thank you yours respectfully Joe Murphy

posted by our Editor: Matthew Pollock | 2008-07-05

We were initially quite positive about the tax-reduction moves of the new government as regards the real estate sector, but the unsettled political situation since then has been worrying.

posted by Freddie Fuckwit | 2008-07-07

Pervert, In the bog

Doomed! Doomed I tell you we're all doomed!

posted by Jansen | 2008-07-12

Netherlands

The Netherlands will be the next with a collapsing housing market.http://www.huizenmarkt-zeepbel.nl

posted by Canadian Thunder | 2008-07-12

GM, Kuwait

I'm buying aggressively in Paris and this despite the slump! Limited supply protects property here and it is less than half to a third of the price of London and NYC! My advice: in an age of runaway inflation, try reverse mortgage to protect your cash.

posted by Joe H L | 2008-07-14

USA

Where can I find up to date pricing for property in Chile. Existing Chile info is 2 yrs old...love your site.!!!great work !!!

posted by our Editor: Matthew Pollock | 2008-07-14

Yes I am sorry - all the Latin data is quite old. We will update, but it takes time and we lack resources. There are no official house price statistics for Chile, unfortunately.

posted by Pepe Lopez | 2008-07-19

Engineer, Madrid

Statistics in Spain are unreliable. Nothing is selling here and promoters are left with huge debts and no money. Don't believe for a moment our statistics, they are a shameless manipulation. If you are crazy enough to buy here demand a 50% discount at least.

posted by Charis Kallides | 2008-07-19

Engineer, Cyprus

I am planing to buy and apartment in Athens very near to a Univeristy area. the thing is that i worry about the global changes in the housing market. do you thing i should proceed with the purchase? will its price increase, decrease or stay the same?

posted by Rajamar | 2008-07-24

investor, bahrain

I am investing in Bahrain,Cyprus and Poland and am thinking of doing the same in malaysia, however there are conflicting views about properties investment all over the world. In Bahrain the prices have more than doubled in the las few years but over supply looms large in the future. Please could anyone give a picture of Malayasian real estate specifically in kaula lampor.

posted by sur pars | 2008-07-24

Sales, Hong Kong

What is the normal sales price to rental ratio to qualify as a sensible purchase?OR is there none in this day and age?I remember being taught that the purchase price shd be about 10 years of rent that is when interst rate was around 8%-10%.

posted by Rajamar | 2008-07-26

Investor, Bahrain

A lot has been advertised about East European countries, specially Poland,Albania,Czec Rep. and others who have joined the European union and Nato in the last few years.What do you and your readers think about the? Are the good for invesment or is buying off-plan risky from investor who promise complete turnkey projects?Thanks.

posted by Brabant | 2008-08-02

consultant, South Africa

Interesting: the main complaint is that people do not trust official statistics anymore. This government fraud apparently happens in every country. There is an excellent US web site: www.shadowstats.com from John Williams. It would be an idea to franchise this idea to other countries.

posted by Bill K | 2008-08-23

Analyst/Valuations, US

Interesting from the comments, but it appears real estate market prices are currently correlated, all moving in the same direction at the same time. One would expect geographic diversity to limit losses. Just goes to show how broad the credit crunch is for housing.

posted by Racquel N. | 2008-09-25

Potential Real Estate Investor, Latin America

Good site...bad news. Any historical data on how Central American and Caribbean house prices behave versus the rest of the world when there is a crisis? Probable outlook for Costa Rica, Panama and Jamaica in the next 12-18 months? Thanks.

posted by our Editor: Matthew Pollock | 2008-09-25

Hi! It would be great to have this data. But alas, Central America and the Caribbean are just total deserts when it comes to historical house price data. There is none, zilch. In Latin America the only country with official data is Colombia, and Argentina has private sector data.

The Caribbean tends to swing very much with the US cycle. When US citizens rein in spending, the Caribbean suffers. Panama is arguably in an end-of-cycle phase, but is likely to have a few years to run (the interview with the director of Livalia on the Home Page is quite insightful about Panama).

So much depends on the U.S. If the voters elect an intelligent guy with an understanding of economics, backed by a deep and serious economic team, the rest of the world will breathe a lot easier.

See also our reflections on investment in Latin America on that continent's sub-page. We're quite bullish about a number of Latin American countries, and the continent is generally in better shape than its been for a very long time.

posted by paul g | 2009-01-17

self employed, ireland

i myself own property in budapest hungary and i can tell you that both the rental market is moribund and the sellers market is comatose , the economy is going nowhere and the attitude of the country is one of , rip off every single foreigner you come in contact with for all they are worth the place is a stinker and i would be happy to loose around 25 thousand euro on my investment , by the looks of things , i will be waiting years to see that kind of respectable loss avoid like the plague