Next up: Global housing crash

Goldman has the good news. If Albo does not fix the energy crisis soon, Australia is going to have the worst bust of the lot.

Home prices surged during the pandemic and interest rates are now rising very rapidly. Are housing markets on track for a hard landing? We introduce a dashboard to monitor trends that are relevant for the outlook for home prices across the G10. We analyze the signal from home price momentum and leading home sales, housing affordability, and demand/supply fundamentals.

While home prices are still rising rapidly in the UK, Germany and especially the US, they are now declining in Australia, Canada, Sweden, and especially New Zealand (down 6% since November). The signal from home sales—which historically lead home prices by around six months—is consistently negative with sizeable declines in recent months across the G10.

We also introduce a global version of our GS Housing Affordability Index (HAI)based on the typical ratio between income and mortgage payments. Our HAI is low in most markets, especially in Canada and New Zealand, has plunged the most in the US recently, and will likely fall further.

On the demand side, the working age population is growing quickly in Canada and France, has slowed in Australia and New Zealand, and has shrunk in Germany and Italy. Housing markets remain very tight, especially in the US and Canada, but also in the UK and New Zealand. However, the pipeline of homes under construction is large in the US, Canada, and Australia.

We conclude by averaging standardized scores on our dashboard. This summary price outlook score is negative across all G10 markets (except France), reflecting low affordability and declining home sales. The outlook score is quite negative in Australia, New Zealand and Canada, somewhat negative in Germany, and slightly negative in Sweden, the US, and the UK.

Substantial slowing in housing is an important reason why we expect DM growth to slow. The very rapid deterioration in affordability and large drops in home sales suggest that a hard landing is a meaningful risk (especially in New Zealand, Canada, and Australia) although that is not our baseline given current tightness.

Houses and Holes
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Comments

  1. Chicken and egg question. Did apartment building drive immigration, or vice versa?

    I had always thought the latter, but I read recently that apartments were driven by investors needing products, and of course the tax system is stacked so that the only investment that makes sense in this poor benighted land is property.

      • ErmingtonPlumbingMEMBER

        That thanks to not enough greenfield land release/rezoning
        And the way greenfield land release’s don’t happen until a developer first puts their hand up to front end load ALL the infrastructure up front.
        This produces a cartel of developers and land bankers who have way to much control over rate of new land release and price with no democratic accountability at all.
        Land should be able to be subdivided outside if the control of grubby developers.

        • kannigetMEMBER

          Yeah, much better to let the developers dump the infrastructure build on the local government.
          Personally I think both approaches have their problems but I dont know which is worse to be frank,

    • eh Chicken first? The developers think they build in response to the existing demand (and high site costs due land banking caused shortage of land) , then find they need more demand to keep prices up and lobby massively for immigration to rent out those apartments…e.g. Meriton – who only build on cheaper , less desirable sites, and keep apartments empty to keep sale prices high until demand arrives.

  2. DingwallMEMBER

    Exhibit 7 ….. need to fix their definitions and index there……….NZ, Aust, and Canada have never been “affordable” for the last 20 years so should never be anywhere near the 0 line let alone over it. Need some better definitions such as ludicrous, nosebleed, insane, etc

  3. “However, the pipeline of homes under construction is large in the US, Canada, and Australia.”

    How’s this when all the housing industry lobby groups keep screaming we aren’t building enough and that’s one of the reasons for a tight housing market; just more bs from them?

    • Hill Billy 55MEMBER

      Shane Oliver did a presentation last September/October in which he showed that since 2015 we have been building more houses than demanded, and that as of late 2020, we had a surplus of houses to our needs. Of course, when the option of taking those housing units off market by way of second homes, AirBNB etc, and squealing about shortages gives an uptick in prices of said housing stock, its a no brainer to that.

      Of course, regulations could and should overcome bottlenecks in the market, but that wouldn’t suit the powers that be in the industry.

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