Tuesday, September 29, 2015

The Global Property Guide - Spring 2015 Edition

Global Property Guide has just released its Q2 2015 analysis of the global housing market and, in general, the world's housing markets "continue to surge" with some exceptions.

Here is a table showing the year-over-year and quarter-over-quarter inflation-adjusted house price changes in order from highest to lowest year-over-year percentage appreciation:

On an annualized year-over-year basis, among the 39 nations in the analysis, Hong Kong saw the greatest percentage price appreciation at 16.43 percent and Dubai saw the greater percentage price depreciation at -11.72 percent.  During the year to Q2 2015, housing prices using inflation-corrected data have risen in 24 of the 39 nations in the analysis.  Of the total, 22 nations showed stronger upward price momentum and 17 nations showed weaker price momentum.

Let's break the data down by region.  

1.) Asia:  As I noted above, Hong Kong's real estate market is the top performer in the analysis, a significant turnaround from the year before.  It will be interesting to see what impact the slowdown in China's economy will have on Hong Kong's property market over the medium term given that Hong Kong's residential real estate is already severely unaffordable according to Demographia.  Japan's housing market rose strongly on the back of Prime Minister Abe's economic stimulus package.  That said, in five of the ten Asian markets, price performance was worse on a year-over-year basis in Q2 2015 than it was in Q2 2014.  The laggards include Singapore, Taiwan, Indonesia, Vietnam and China.  Here is a graphic showing how the Asian laggards have performed since 2010:

2.) North America:  The real estate markets in both Canada and the United States are strong and showing improvements when compared to 2014.  In Canada's eleven major cities, housing prices have risen by 4.0 percent on a year-over-year basis in Q2 2015, up from 2.03 percent in 2014.  This is the largest year-over-year increase since the first quarter of 2012.  Here is a graphic showing the performance of the Canadian housing market since 2001 in both real and nominal terms:

The best performing Canadian market was in Vancouver with year-over-year price increases of 7.4 percent in Q2 2015.  This compares to 6.7 percent for Toronto, 4.6 percent in Victoria and 4.5 percent in Hamilton.  The biggest falls were in Montreal at -1.4 percent, and Ottawa and Calgary, both at -0.8 percent.

In the United States, both the Federal Housing Finance Agency's seasonally-adjusted house price index and the Case-Shiller seasonally adjusted price index showed improvements when comparing year-over-year data for Q2 2014 to Q2 2015.  Here is a graphic showing the performance of the U.S. housing market since 2001 in both nominal and real terms:

3.) Europe:  It is interesting to see that Ireland's property market is showing significant signs of life after being one of the markets that were driven down substantially during the Great Recession.  Unfortunately, the same cannot be said for Spain, another casualty of the real estate bubble collapse in Europe.  While they aren't present on my table, both Iceland and Estonia had significant price increases on a year-over-year basis in Q2 2015 with Iceland's prices rising by 6.19 percent and Estonia's rising by 8.99 percent.  Other strong markets in Europe include Romania (4.83 percent), Norway (4.26 percent), Germany (3.93 percent), Switzerland (2.76 percent) and the Netherlands (2.11 percent).  

European nations with minimal house price increases on a year-over-year basis in Q2 2015 included Portugal (1.53 percent), Slovakia (0.92 percent), Lithuania (1.15 percent and Latvia (0.65 percent).  

Russia had the third worst performing real estate market in the analysis with a year-over-year drop of 11.13 percent in Q2 2015.  This is not particularly surprising given that Russia's economy has been under significant strain thanks to international sanctions and dropping oil prices.  Spain, Greece, Cyprus, Croatia and Finland were among the losing nations.  Ukraine (Kiev) had the worst performing market in the analysis with a year-over-year drop of 10.64 percent in Q2 2015 following on the heels of a 33.49 percent year-over-year drop in Q2 2014.  We have to keep in mind that Ukraine's central bank has raised its benchmark interest rate to 30 percent in March 2015 and that the overall economy is expected to shrink by 9 percent this year.

This data shows us how widely variable the health of the housing market is both globally and regionally.  With the Federal Reserve once again contemplating its "monetary policy navel", it will be interesting to see how long it is before mortgage rates begin to rise around the world as other central banks fall into lockstep, putting pressure on housing markets where valuations have become stretched when compared to lagging household incomes.

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