Predictions of a “global house-price bubble” are intensifying, according to ResearchWorldwide.com, a real estate information portal.
The company cites common threads linking “the rising tide that lifts all boats” in housing markets worldwide. Homeowners have experienced the lowest real interest rates worldwide in many decades, a low rate of inflation, and lackluster equity and bond market performance, for example. These factors have contributed to rising house prices, followed by asset growth and, occasionally, by profit taking, the company reported.
“Conversely, there are common denominators, which could cause the unraveling of the global housing boom,” ResearchWorldwide reported this month. “A major economic or political shock, such as soaring oil prices, a significant interest rate hike, or the outbreak of a major war could negatively affect homeowners’ confidence levels.”
A severe hike in U.S. interest rates could damage the U.S. and global economy, the company noted. “An alternative U.S. government strategy may be the introduction of a ‘patriotic’ consumption tax to reduce consumer spending, making imports more expensive and less affordable for U.S. consumers, thereby ultimately increasing the value of the U.S. dollar. This pro-active stance may restore some confidence in the U.S. dollar, encourage higher foreign capital inflows and keep worried foreign investors at bay,” predicts ResearchWorldwide.com.
“If U.S. interest rates do not rise substantially in 2005 then U.S. homeowners’ major asset – their homes – may not see a fall in value. Over time, U.S. house prices and global house prices would then adjust to local supply, demand and affordability conditions, avoiding a bursting bubble scenario,” the company also predicts.
The “bubble” will not necessarily burst, instead the “surplus air can be deflated” via local market adjustments, ResearchWorldwide stated. “The inefficiency and imperfection of residential markets in countries worldwide could enable realistic adjustments in affordability and price to take place at local levels. As prices rise, more home buyers will be forced down the affordability pyramid. They will move to less desirable, but more affordable, locations and trade down on their levels of expectation. They will adjust to, and accommodate at, a local market level.”
There will probably be casualties in local residential markets worldwide – especially at the oversupplied investor market level, the company noted. “However, these smaller localized bubbles may burst without unduly affecting the larger local market conditions.”
ResearchWorldwide.com created a Worldwide House Price Indices Performance Ranking 2004 that shows the rate of increase in house prices. Ten countries experienced a rising rate of increase in the second half of 2004: Belgium, Canada, China, France, Hong Kong, Israel, Norway, South Africa, Sweden and the United States. Meanwhile, 10 countries also saw a slowing in the rate of increase in house prices during the second half of 2004: Australia, Finland, Ireland, Italy, Japan, New Zealand, Spain, Switzerland, The Netherlands and the United Kingdom.
South Africa: South Africa, the best performing country in ResearchWorldwide.com’s 2004 rankings with a 32.6 percent increase in house prices, long suffered from political uncertainty, which caused reduced demand from 1984-1999. The housing market in South Africa took off strongly in 2000, six years after the first democratic elections took place in 1994. During the boom phase since 2000, South Africa has experienced a 17 percent per year rise in house prices in nominal terms, and 11 percent per year in real terms.
Hong Kong: Hong Kong house prices collapsed by more than 50 percent in the 18 months following the mid-1997 handover of the former British Protectorate to China. “Although confidence returned from August 2003 onwards, the recent 45 percent increase (in house prices) is still well below the peak achieved in early 1997.”
Hong Kong, in second place in the ResearchWorldwide.com 2004 rankings with a 27.2 percent rise in house prices for the year ending November 2004, still has plenty of steam left in its ‘catch up’ phase. Its strategic location as a user-friendly city into the lucrative and fast-growing Chinese economy is a relatively new demand driver.
United Kingdom: The United Kingdom market has experienced a significant slowing in the rate of increase in house prices since July 2004. Using mortgage provider Nationwide’s statistics for the first seven months of 2004, the rate of increase was 11.4 percent, but since July 2004 prices have only increased by 1.2 percent.
This slowing down in the rate of increase in house-price patterns should be experienced in a number of countries during 2005, ResearchWorldwide reported. Other countries already experiencing a slowing rate of increase in house prices include Australia, Finland, Ireland, Italy, Japan, New Zealand, Spain, Switzerland and The Netherlands.
Some countries still experiencing upswings in rates of house-price increases, such as Belgium, Canada, China, France, Hong Kong, Israel, Norway, South Africa, Sweden and the United States, will likely see peaks being reached during 2005 and slowing rates of increase in house prices being reflected as 2005 unfolds, the company also reported.
“Providing no major interest rate increases or other macro shocks occur during 2005 and providing local market knowledge and information is shared to enhance responsible real estate decisions, then the air can slowly be let out of the bubble,” the company reported. “Housing markets in various countries worldwide could experience a slowing down in activity with adjustments being made at local levels, which would enable demand and supply to approach reaching an equilibrium at realistically affordable levels.”
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