Housing Angst Around the World

While housing news in the US is mixed – starts rebounded above one million units at annual rates on a surge in apartments while the NAHB Housing Market Sentiment Index slipped to 45 – other markets are spreading fear and anxiety.

China’s housing market appears to be peaking, raising fears of a further slowdown in the Chinese economy and weakness spreading to much of Asia.  Bloomberg reports new home prices rose in the smallest number of cities across China in the last one-and-one half years. Prices were up in 44 of 70 cities in April compared to 56 in March.  China’s central bank is urging lenders to make more mortgage credit available to support the construction sector and reduce the risk of sharper and deeper drop in housing. However, some commentators point out that easy credit maybe part of the problem while others wonder if it’s not too late to prevent a sharp drop in housing and home building and a further softening in China’s GDP growth rate, already down to 7%-8% from 10% or more.

A similar story is taking shape in Great Britain where support for home buying was one of the policies designed to get the economy growing after the financial crisis. Rapidly rising house prices and surging debt levels are seen as a threat to the British economy by Vince Cable, the government’s business secretary.  The “Help to Buy Scheme” designed to assist home buyers is pushing prices higher but is pushing debt back to levels seen in 2008. Nick Clegg, deputy Prime Minister and Mark Carney, head of the Bank of England issued similar warnings.  Unlike China where more credit is being called for to cushion the fall, Britain seems to be looking at little further ahead in its concerns about preventing another debt overhang.

Some housing markets still runaway with runaway demand.  A piece in the New Yorker magazine suggests that there are some “hedge” cities where the wealthy, concerned about politics in their home country, invest in housing to protect their wealth or hedge their political issues. London prices may reflect developments in Russia or Eastern Europe at times; Miami prices respond to turmoil in Latin America and more recently Vancouver reacts to concerns of Chinese populations across Asia.  For Vancouver this may not be that new – prior to 1997 when Great Britain returned Hong Kong to China, a similar pattern was seen.

All this makes U.S. housing look almost peaceful by comparison. Prices continue to rise but all signs point to a moderating pace.  Freddie Mac expects home prices to rise about 5% in 2014 down from the double digit seen recently. The big questions for the US are different: the strength is in apartment construction, not single family homes. Is this temporary as the economy continues to recover from the financial crisis or is it the beginning of a long term shift people’s preferences for homes and apartments.  Time will tell.

The posts on this blog are opinions, not advice.
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