The Global Property Market: Where Are the Bubbles?
Since the turn of the year 2010, property markets have rallied to new multi-year highs with the likes of the US, the UK, and China leading the way. Major cities across the world have also witnessed significant gains with some places like Vancouver and Singapore peaking in 2013-2015 before dropping sharply in 2016.
On the other hand, UK property prices are expected to fall following the Brexit vote last year and the subsequent trigger of Article 50 by Prime Minister Theresa May this year. And while most developed markets in Africa still have a lot of room to run, analysts are predicting that there could be somewhat of a cooling-off period before the next leg kicks in.
Some of the highlighted housing markets in Africa include Cape Town in South Africa, Nairobi in Kenya, Lagos in Nigeria, and Cairo. Despite the growing urbanization of these markets and the increase in property prices, property market experts believe that they are yet to catch up with price levels exhibited in other major cities across the world.
So, where exactly has the bubbling reached the boiling point?
In some major cities across the world, property prices have already reached boiling point. In China, property prices climbed 11.2% year-on-year across 70 major cities, with second tier city Hefei recording a record 46.8% on-year gain.
The quick gains in property prices were a result of the Chinese Government introducing measures aimed at boosting home sales. However, due to the increasing fears of the property market overheating, the Chinese Government had to step in again and introduce a flurry of market cooling measures.
The UK and Australia
In Australia, residential property prices surged 12.9% in the past 12 months with highs of up to 18.9% being witnessed in Sydney. The price surge has ignited fears of a property bubble with some areas noting home prices more than doubling.
Elsewhere, the UK is fighting a property bubble of its own. In March, UK house prices fell for the first time in almost two years reflecting a slowdown in the property market. This was despite a forecast of 0.4% increase in property prices during that period pushing the annual growth rate to a 19-month low of 3.5%. The fall in-house prices was felt across all markets with the Bank of England recording a decline in mortgage approvals.
This trend is expected to continue following the Brexit vote that saw property prices fall. Even though it can also be argued that the UK economy might not bear the adjustment costs incurred following Brexit, the majority of UK home hopefuls will still trend cautiously when deciding to buy their new home. This is as a result of a weakened Pound, which has conversely made houses in the UK cheaper to foreigners.
However, according to a report compiled by the London office space blog early this year, the UK property market might yet find a new leg up from the ever-rising London property prices. London is the anchor of UK property prices and as long as prices keep rising in the city, the overall property market will continue to benefit from this.
In Canada, Vancouver witnessed the first real signs of a property bubble when overall sales of homes plunged 19% in July 2016 with sales of detached homes plummeting a further 31%. In August that same year, sales plunged a further 51% year-over-year with sales of detached homes falling a further 66% following British Columbia’s 15% transfer tax on home purchases involving foreign investors. Today, fears of a property meltdown continue to loom over hopeful new homeowners as house prices continue to surge.
The US is closely tied to the 2008 housing bubble that conversely led to the global financial crisis in that same period.
Today, it might not be another bubble set to burst but surely there are growing concerns in the US housing market. For instance, 2016 was not a good year for people looking to buy a new home in the US as home prices kept rising. This was heightened when the Federal Reserve hiked interest rates in December that year thereby pushing mortgage rates up.
The same was echoed when two companies considered giants in the housing market reported disappointing results and also issued weakened forecasts. Appliance giant Whirlpool and paint manufacturer Sherwin-Williams both plunged 11%. A significant drop in share prices was also noticeable across big builders like Lennar, KB Home, and Pulte.
What Next for the Housing Market?
There are growing fears that we might be heading for another housing market collapse as property prices continue to surge. This is already being reported across major cities. However, some analysts are calling for people to be calm down by pointing towards growing populations and urbanization.
In the US, Len Kiefer – deputy chief economist for the government-backed mortgage buyer Freddie Mac – said that there was a “…battle between low mortgage rates and rising interest rates.” This has seen home sales continue to rise despite rising interest rates.
Economists also believe that a housing crash in the UK is unlikely because of a reported shortage of homes coming into the market. This is despite a majority of the home hopefuls drawing caution over making major financial decisions, like buying a home, as fears of uneventful bubble burst continues to loom.
It is not all doom and gloom for the housing market as homeowners have opted to rent rather than buy. In England, home ownership was at the lowest level since 1985, at 62.9% in 2016. This was countered by the rental sector where 20% of households are privately rented, up from 12% 10 years ago.