In the news: cracks in the global housing market

Property markets around the world are subdued
by Bethan Rees

House prices in some of the world’s most sought after locations are starting to dip after a years-long surge, according to Bloomberg. The reasons for this are reported to be a combination of tax changes affecting demand, issues of affordability and tough lending standards. Bloomberg reports that, according to the International Monetary Fund, this could have wider consequences as the world’s wealthy people have been buying homes on multiple continents, implying that a downturn in one country could affect markets negatively elsewhere. 

In London, sales volumes are down and, in central London, transactions have fallen by almost 18% since 2014, with some homes losing a third of their value, according to research by estate agent Savills. On 2 August 2018, the Bank of England announced it is increasing the interest rate, from 0.5% to 0.75%, which could impact some mortgage holders. Jon Ostler, CEO of personal finance comparison website, says: “The UK's average mortgage debt with a variable rate mortgage face paying an extra £17–£18 per month, which adds up to an extra £200 per year or more than £6,000 over the life of a 30-year loan term.”

London's property market problem is also exacerbated by developers working on “multimillion-pound penthouses in a city with a chronic shortage of affordable housing”, Bloomberg reports. 

In China, restrictions on the property market, such as buying thresholds, are freezing sales and property values are going down. In Sydney, Australia’s biggest city, house prices are falling and have been for the past ten months. According to Bloomberg, this is due to a combination of credit restrictions, stretched affordability and the end of the “fear of missing out” mentality in property buyers. 

In Manhattan, New York’s most expensive borough, house sales have been falling for the past three quarters. Bloomberg reports that there were almost 7,000 apartments on the market at the end of Q2 in 2018, which is 11% more than Q2 in 2017, and this rise in inventory has allowed buyers in Manhattan to be picky.

Bloomberg article
Bigger than the Big Apple The slowdown in the US housing market is not just concentrated around Manhattan. In its Q2 2018 report, the Bureau of Economic Analysis says that residential investment, which includes construction and brokers’ fees, fell for the third quarter in a row. 

Business Insider’s Akin Oyedele quotes the chief economist at investment banking firm Stifel, Lindsey Piegza, who says that the housing market “raises a large red flag” for the US economy. This is because residential sales help drive other parts of the economy, such as consumer confidence.

Oyedele writes: “Buyer fatigue is building, even though a strong jobs market and the maturing of millennials mean there's plenty of demand for houses. Evidence of this fatigue came last week in several sales reports.” He quotes figures from the National Association of Realtors, which says the pace of existing home sales (about 90% of the market), fell for its third straight month in June.  

Oyedele reports on comments from real estate appraiser Miller Samuel’s CEO, Jonathan Miller, who says that sales in the high and low ends of the market were slowing down for different reasons.  

Luxury-home sales in high-end markets, including Manhattan, Los Angeles and the Hamptons, have cooled amid uncertainty about the effects of the new Tax Cuts and Jobs Act, which cuts the amount of mortgage interest homeowners can deduct from taxes.

At the cheaper end, the market has “crossed an affordability threshold” after many years of increasing prices, low inventory, slow wage growth, and, now, rising mortgage rates, Oyedele reports Miller as saying.

Business Insider article
British estate agent taking a hit On the other side of the Atlantic, the downcast property market is also affecting estate agents. An article by Proactive Investors reports that British estate agent Foxtons has made a significant loss. Foxtons Group’s total adjusted earnings before interest, tax, depreciation and amortisation came in at £100,000 this year. In 2017, the same earnings were £7.1m.

According to Proactive Investors, revenue in the same period declined from £58.5m to £53m as the London sales market weakened. However, Foxtons has said that the under-offer pipeline has improved since the beginning of the year. 

Proactive Investors article
It seems property markets around the world are in decline, with sales in China, the US, Australia and the UK falling, and this could have a knock-on effect to the wider economy. In London, Foxtons is suffering as a direct consequence of the subdued market, but will more estate agents be affected, in London and the rest of the world?

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Published: 03 Aug 2018
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