Global house prices have cooled over the past 18 months, with no indication of an alarming ‘bubble’, according to HSBC.
“For now, global housing markets do not appear to pose any immediate threat to household consumption,” the bank said. “Tight labour markets, positive real wage growth and low interest rates should keep house price growth steady in most countries.”
However, if unemployment rates rise as the global economic outlook sours further, or conversely central banks start tightening more, “housing markets may start to come under more pressure”, it added.
Nominal house prices across the world grew by 4-5 per cent year-on-year on average in the fourth quarter of 2018, following five consecutive years of average price growth, according to the research.
Two countries have seen a sharp correction in house prices in the period. One is Sweden, whose house prices fell by 10 per cent in early 2018. Although Swedish housing prices stabilised by the spring, they have yet to recover with a 2 per cent decline registered in the fourth quarter. “Aside from a collapse in construction, we have not seen the weakness spread to the rest of the economy,” HSBC said.
The second country is Australia, which recorded a 7 per cent decline in house prices in the fourth quarter of last year. “The correction has – at least so far – been orderly, with the low level of unemployment meaning there are few signs of distressed sales, and loan arrears have remained low.”
Turkey is also seeing house prices fall, with a circa 14 per cent year-on-year drop in the last three months of 2018.
US housing data shows valuations remain high, but prices have not bubbled up, and the drop in mortgage rates should provide a cushion, the report added.
Meanwhile, in China, house prices are down in the largest cities, while smaller cities are seeing steadier growth. Housing construction has picked up, which could weigh on prices going forward, HSBC added. However, local governments have scaled back policy tightening seen in 2018, and this could reduce the pace of any slowdown.
House price growth is typically used to gauge the health of an economy, HSBC noted.
“If an economy has a healthy labour market – where unemployment rates are low (and not rising), real wage growth is positive, debt levels are low, interest rates are expected to stay low and house price growth is not too strong, then it is hard to be too concerned about the housing market outlook,” it said. Both Australia and Sweden have such underlying fundamentals, it added.
However, if house prices rise without these fundamentals in place, the trend may be less sustainable. Equally, if house prices start to fall, it will be crucial to monitor the extent of any impact on the broader economy.
