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The global housing market is showing the first wave of correction due to rising rates

The monetary slide initiated by the Bank of England last December, led by the Federal Reserve, with the highest increase in the price of money since January, is taking its toll on property markets. Especially in the great capitals of different latitudes of the so-called Anglo-Saxon culture, which, in a generalized form, recently played Boom Home sales were fueled by economic stimulus — $14 trillion — and monetary stimulus — another $9 trillion — massively used during the Great Pandemic by industrialized nations. And some of them even without abandoning the boiling real estate bubble cartel set up by investment banks such as Switzerland’s UBS.

However, the business boom with double-digit value growth has faded. Investors and home buyers have paralyzed or delayed their decisions to purchase real estate after months of waiting for a decision to get cheap money mortgage benefits to validate real estate.

Last August seems to have marked this change in trend. Cities such as Australia’s financial and cultural capital, Sydney, have seen the biggest price correction in the housing market in nearly four decades. “We see a somewhat rough and synchronized descent in the real estate sector between 2023 and 2024,” admitted Hideaki Hirata, a professor at Hosei University, a former Bank of Japan economist and one of the authors of the latest. working paper International Monetary Fund on house prices around the world. Hideaki Hirata warns of “a period of broad price declines due to aggressive rate hikes until households reconcile their spending and income.”

Notices appeared on the ships in early 2022. Economist warned before the war in Ukraine and the Fed’s first move that home-buying costs were already “too high” in major cities in high-income economies. And especially, in the United States, where real estate assets have exceeded 34 billion dollars, which is almost similar to its GDP and that of China. In 2020, in the midst of the epidemic, it registered sales contracts worth 1.5 trillion, an amount similar to the size of the Spanish economy.

The turmoil in the real estate business also affected other latitudes – UBS experts predicted – such as Toronto or Hong Kong, which before the great pandemic were used to a high risk of bubbles. Like European cities such as Frankfurt, Munich, Paris, Amsterdam or Zurich, in which “the risk of an explosion has increased with the expansion of their prices and the growing breadth of their territorial radius of action,” they added at UBS. His Estate Bubble Index 2021 Because of the threat of “perfect elasticity” of prices, they have already advised you to “consider alternatives” to the investment.

Months later, last spring, his x-ray was sharper: the global real estate market is going through a long and turbulent gap, visible in major cities on both sides of the Atlantic Ocean, subject to serious crisis scenarios, overvalued. Prices and the first signs of investor risk aversion.

Claudio Saputelli and Matthias Holje, UBS analysts for the US market, focused on this real estate correction in New York, San Francisco, Los Angeles, Miami and Boston, the epicenters of what they called speculative bubbles. In the five cities studied by UBS, the highest price increase in 45 years was recorded in the first quarter of this year, due to an increase in the main raw material for housing construction.

The combination of high interest rates and weak dynamism with increasing uncertainty in employment generation has also increased household debt levels. Primarily among young households, who have seen their mortgage obligations rise overnight due to rate hikes and inflation being pushed into the basket without a corresponding update to their salaries, says Rob Subbaraman, head of market research. Nomura’s strategist. “This is shock With a pretty strong dose of reality in a very short time,” he explains.

At Goldman Sachs, they have the same question. Rapid price growth and investment in the real estate sector has given way to a much more restrictive ecosystem in 2023 in markets such as Canada, with prices falling by 6%, New Zealand by 18% or Australia by 13%. In the United States, they see a 3% decline, with more immediate cases and greater depth in its major metropolitan areas. Moody’s, which is more pessimistic, sees the average cost of buying a home in the world’s largest nation falling 5% to 10% federally in 2023, but with a regional shortfall of 15% to 20%.

In Canada’s case, the strain on the financial order is combined with a deficit in demand. Its National Housing Agency (CMHC) highlights that the real estate census will require 5.8 million new buildings until 2030 and difficulties in finding construction workers or excessive material costs. Liberal Justin Trudeau’s government has imposed a two-year ban on home purchases by foreign investors to stabilize the market, but experts say it will need to use more measures.

New Zealand is the clearest example of a phenomenon that plagues new generations. In a country with high inflationary pressures and already very high rates, his young company is waiting out the storm, delaying purchasing decisions after enduring two years of post-pandemic prices. New Zealand’s home ownership rate for under-25s is at its lowest level in 70 years.

Australia does not escape this structural trap either. Real estate research firm CoreLogic said in August that every city in the country except Darwin saw registered price declines. The consultancy estimates the loss of total home values ​​in the country between June and August at $9.7 billion, the biggest quarterly decline since the 1980s. “The price is falling, worse than it was Credit crisis The previous financial crises of 2008 or the early 1990s or the recession of the previous decade,” says Tim Lawless, director of research at CoreLogic. In his view, failures in Sydney and Melbourne “will carry over to the rest of the cities and regions in the coming months”.

In enclaves such as Singapore, warns Kwan Ok Lee of its National University, “cooling prices can have positive effects”, given their high level of sophistication. However, if central banks “go too far with their restrictive policies, real estate prices could fall sharply and deepen and prolong the recession,” warns Niraj Shah, an industry analyst at Bloomberg Economics.

In South Korea, one of Asia’s highest-performing markets, the government in Seoul has given the green light to a fund awarded more than $290,000 million to help families pay off mortgage debt. While in Poland, where these monthly payments were doubled, an eight-month payment moratorium was opened, with the argument of special benefits, even after significant additional provisions, in the amount of 2,780 million dollars demanded by its big banks by the monetary authorities.

In Sweden, perhaps the hottest real estate market in Europe, prices have already fallen by 8% since spring, with forecasts for a 15% drop in 2022 overall and deep investor anxiety over rising rates and massive divestment. refinancing their debts in the bond markets. And firms such as HSBC Holdings expect the decline to accelerate in the UK, where they expect a 20% loss in demand next year. Moody’s names France as the eurozone market with the biggest drop in house prices by 2023, at 6%.

The industrial expansion experienced in China since 2006 seems to be coming to an end. In the midst of restructuring of the sector, amid the suspension of payments under the supervision of Evergrande Emporium Beijing and social restrictions due to the Covid-zero policy, major capitals have seen a slowdown and stable prices.

Source: El Diario





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