There are rumbles in the global housing market. It is not looking as healthy as it was, and economists are warning that issues in the market could pull global gross domestic product (GDP) to rates not seen in 10 years. Research published on the 24th of June by Oxford Economics from the researchers Adam Slater and John Payne, seen by MarketWatch, shows that all is not well.
In the article, the authors are quoted as saying:
“A combined slump in house prices and housing investment in the major economies could cut world growth to a 10-year low of 2.2% by 2020 – and to below 2% if it also triggered a tightening in global credit conditions.”
Since the 2008 global financial crisis and the accompanying burst of the US housing market bubble, some experts warned about underlying systemic changes needed to avoid another crash have not been made. In other words, the problems that caused the last crash are probably going to be a part of the next crash.
Some useful metrics show us that conditions in the global housing market are not looking friendly. According to statistics revealed by Oxford Economics, globally housing prices have fallen 10 percent in real terms and investment into housing has fallen 8 percent since the crash.
Many factors influence the prices of houses globally. However, the most significant and most noticeable factors at the moment are the tariff wars between the USA and China, which have sent ripples through the whole global economy. The shocks have been so severe that many central bankers around the world have downgraded their growth expectations and even considered further stimulus to cope with the effects. For example, the Federal Reserve signaled last week willingness to lower Federal bond and fund rates, which are currently at a decade long high of 2.25 to 2.5 percent. The Fed has been desperately trying to shore up interest rates, and an admission that rates might need to be lowered is an ominous sign for markets.
The housing market in China is showing signs of stress. A decade of massive investment, often funded by the shadow banking sector, and enormous household debt, now totaling about $6.8 trillion ( a 70 percent rise in 3 years, according to the Bank for International Settlements), has resulted in large numbers of properties remaining unoccupied. As the broader Chinese economy restructures itself into a consumer economy, demand for construction is also falling. Evidence of an enormous speculative bubble in China points to more systemic problems in the Chinese economy, an economy to which global markets are much more exposed than in 2008.
Overall, the trend does not seem to be in falling house prices around the world, although they have fallen in real terms; the trend emerging is that high valuations combined with a slowing development market mean that house price falls are likely in the years ahead.