STOCKMARKETS around the world have been stimulated by ultra-loose monetary policy. The response of property markets—the biggest asset class of all—has varied. Whereas the housing boom before the financial crisis was remarkable for its global reach, the recovery after the bust is patchy. Among the 18 countries shown in the table, prices have risen over the past year in 12. The biggest increase has been in Hong Kong, where house prices are up by 24.5%. The biggest faller is Spain, where prices are down by 7.7%.
Property markets are generally strong in the developing world. Prices have forged ahead by 11.1% in South Africa. They have also been buoyant in two big emerging economies included in our compilation for the first time: Brazil (up by 12.8%) and India (10.7%). China’s house prices have increased modestly, by 3.3%.
Housing markets are notoriously prone to boom and bust. To judge whether prices are at sustainable levels we use two yardsticks. One is the ratio of prices to disposable income per person, a measure of affordability. The other is the price-to-rent ratio, which is analogous to the price-to-earnings ratio used for equities, with rents going to landlords (or saved by homeowners) equivalent to corporate profits. If these gauges are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.
On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.
By contrast, the recovery in the United States, where house prices are up by 9.3%, is based on solid foundations. Previous falls in prices have made homes cheap by historical standards. The recovery has been driven by investors rather than owner-occupiers, but interest on the part of homeowners is increasing. Housing starts are rising sharply.
In the crisis-stricken euro area the Spanish freefall will continue, judging by still- elevated valuations. Housing markets are depressed throughout southern Europe, notably in Italy. But the agony is no longer confined to the periphery of the euro zone. Home prices are falling fast in the Netherlands and they are also sagging in France. High valuations in both countries point to more misery ahead.
The big exception in the euro zone remains Germany, which avoided the great housing boom before the financial crisis. Property prices continue to rise, though at a stately pace. They remain undervalued judged by both rents and income, which provides scope for more gains.
British house prices have stagnated over the past year. Though still high, they seem likely to rise further thanks to government support. In a joint operation between the Bank of England and the Treasury, mortgage lenders can already get cheap funding, letting them offer more housing loans. Buyers of new homes who cannot muster a big enough deposit are now also getting help from a shared-equity scheme. And the government will provide partial guarantees on £130 billion ($200 billion) of low-deposit and therefore riskier mortgage loans made in the three years starting next January.
America’s housing-market upturn will help sustain its wider recovery. The blight afflicting many European property markets is one more reason why the euro area is bringing up the rear.
Source: The Economist.
No comments:
Post a Comment