Housing bust spreads across global markets

By Leith van Onselen

From Bloomie comes analysis on how a synchronised housing bust is developing across global cities once considered ‘safe havens’:

In Manhattan, the median condo price dipped below $1 million for the first time in three years. Hong Kong home values endured their longest losing streak since 2008, while prices in outer London neighborhoods fell for the first time since 2011. Sydney home owners are grappling with the worst real estate slump since the 1980s.

Luxury residential prices are growing at the slowest rate since 2012, according to a Knight Frank index of prime properties in 43 cities…

Governments became concerned the gains were unsustainable, and reacted with measures aimed at curbing the flows of international money…

Similar dynamics are playing out around the world. The number of home sales in Vancouver dropped 32 percent in 2018 from the previous year, following a series of new taxes, stricter mortgage rules and rising interest rates. Median prices in Auckland registered their first annual drop since 2008 after the New Zealand government passed legislation to restrict foreign buying that it said was partly to blame for escalating housing costs. Home prices have dropped 11 percent in Sydney from their 2017 peak after government restrictions on foreign purchases and tighter credit.

Last year, the International Monetary Fund (IMF) released a new report showing that house price growth has become increasingly synchronised at both the city and country level, particularly since the global financial crisis.

In summary, the growing integration of financial markets along with the synchronisation of interest rates and the global flow of institutional investment and wealth has meant that global dwelling value are more likely to move in tandem.

So, in countries that are more open to global capital flows, house prices are behaving more like financial assets, such as stocks and bonds, which are influenced by investors elsewhere in the world.

This is particularly the case in markets like Sydney/Melbourne, Auckland, and Vancouver/Toronto, which were also magnets for Chinese money, resulting in what was explosive growth followed by the current pull-back.

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Comments

    • It is related, of course. Money supply growth rates have declined sharply — that’s all there is to it. No other fundamentals are relevant.

      Central banks have added $20 trillion to the global money supply since the GFC — which has to go somewhere, be it real estate, antique cars, rare paintings, luxury cars, sky-scrapers etc. Now the tide is receding …. which is why every major real estate market is declining in tandem and why stocks and other risk assets have been under pressure lately. The fuel to drive prices higher has run out.

      Fed models don’t make the connection between their balance sheet and asset prices, so those chumps think that the stock correction is unrelated to the balance-sheet run-off. For now, at least.

      • they’re aware. Someone posted a link a few days ago to a 2013 speech by Powell when he was on the Fed (but not the chairman), explicitly acknowledging the relationship and risk between the Fed’s OMO and other schemes and asset prices and risk

      • US and others exported wage inflation —> China (eventually) exported its asset inflation. Asset owners in US and others happy. Chinese happy.

        Too much wage inflation for China; US and others (and eventually China) export wage inflation to Vietnam and others.

        Concerns in the transition, and relations with China breakdown, flows disrupted, try and paper over cracks in transitions with QE (eg. Japan) —> assets down.

      • Recent booming classic cars (80s era) Ferrari’s (think Testarossa’s) and Porsche’s (SC 911’s and 930s) have definitely seen the steam come out of them. Auction results are also less amazing than previous years for many “blue chip” cars. The lesson remains the same, buy what you love, because you love it. Not because you’re speculating. But people and central banks never learn.

      • @CM
        Definitely conflicting messages coming out of the Fed — a recent speech by committee member Charles Evans suggested they couldn’t join the dots on this. All smoke and mirrors perhaps.

      • Re above see also: “Cantillon Effects“ deployed against workers in developed countries to the benefit of asset owners with a complicit political class and just enough of the asset owning baby boomers to squeeze it through. Sorry millennials, etc!

  1. Su Lin Tan of the AFR has summed up the Aussie situation perfectly.

    https://www.afr.com/real-estate/chinese-buyers-more-concerned-about-falling-prices-than-opal-tower-engineering-problems-20190114-h1a23h

    “The problems at Opal are not fazing Chines”

    “Late last year and at the start of this year, we have had people inquiring about apartments wanting to take advantage of the falling Australian dollar. Many also want the safety of converting their Chinese renminbi into the Australian dollar,”

    “Chines buyers have already turned towards low-rise standalone homes such as house and land packages so the failure of “tall towers” would not greatly affect their buying decisions.”

    • Sigh….. bust needs to be bigger then.
      They start rioting in the streets at home when prices don’t go their way.

    • Shill Lin Tan in form again.

      They’ll still get burned in a house and land package, esp outer suburbs. And doesn’t mention existing buyers who are currently trapped.

      Plus the AUD is about to get massacred. Makes far more sense to get into USD. IMO this is a puff “dont panic” piece.

    • “The greater roadblocks to investments are falling house prices, lack of mortgage financing, inability to transfer capital from China to Australia and untrustworthy middlemen such as property marketer Ausin, which collapsed late last year following the disappearance of housing deposits in China.”

      So given that list why would they bother? Would think if all they were after is a currency hedge maybe they should just trade FX from the comfort of home?

    • It’s not surprising they’re not fazed, they’re used to poor quality – gone to great lengths to perfect it even. Chubudor & drunken Greed have proved to be a deadly combination.