Is the housing bust over, or is it about the economy (stupid)?
by Dan Krell ©2012
Last week’s Wall Street Journal report that the housing bust is over has grabbed everyone’s attention (Housing Passes a Milestone; wsj.com). The WSJ reported that of forty-seven “forecasters” surveyed, forty-four believe that the housing market has bottomed out. There are several factors cited by these “experts” as rationale for the stating the bust is over, as well as asserting that the housing market will not be a further drag on the economy. However, many experts may be missing some data points; as well as not recognizing causality.
Although the U.S. housing bust may be over (for now), as experts proclaim; other regions of the world are struggling. Two of the most influential economic regions, Europe and China, are experiencing real estate slumps.
According to a May 31st report in The Economist (Downdraft: European house prices are finding it harder to defy gravity), global house-price indicators point to increased volatility. Although, Europe’s housing markets experienced similar declines we experienced during the financial crisis; individual countries differed in their housing outcomes. Troubled economies, such as Ireland and Spain, continue to have lagging housing markets. Ireland’s already depreciated home prices are reportedly continuing to drop; while Spain’s home prices are reportedly over valued while prices also continue to drop. However, Germany, France, and Belgium’s housing bounced back relatively quickly and reportedly appreciated through last year.
However, as recession looms and unemployment increases in the Eurozone; The Economist reported that the pace of housing depreciation increased in weaker countries, while housing appreciation stalled in Germany and France.
The other big economy that may also show signs of stalling is China. China’s recent GDP growth was reported to be 7.9%. From a bustling economy that reported GDP growth over 10% in 2010, and GDP growth over 9% in 2011, the shrinking GDP may be a signal. Although overall Chinese housing prices are reportedly flat, some have reported that some provinces have experienced as much as a 30% drop.
Although the Chinese housing market is a bit different than the U.S., (private property ownership is a relatively recent development); albeit volatile, housing is a component of the Chinese economy. A December 2011 report by Patrick Chovanec in Foreign Affairs (China’s Real Estate Bubble May Have Just Popped) indicated that Beijing new home prices dropped 35% in November 2011. Property agencies reported that new home inventories are building and buyers are hard to find.
Additionally, The China Perspective reported in January that re-sale home sales volume dropped about 23%. As a result, real estate agencies are closing offices. It was reported that an average 3.8 offices closed daily in Beijing; while the number of real estate agency offices in Shanghai has been reduced 40% since their housing peak.
As other global housing markets stall, there may be a silver lining. The devaluation of residential real estate abroad has attracted foreign investors to U.S. housing. Although international buyers have bought homes at all price levels, the luxury real estate market seems to be attracting most attention.