Property markets are booming globally, how does NZ compare?
Housing is riding an extended boom from the US to the UK to China. Global housing valuations are soaring at the fastest pace since 2006, according to one global real estate consultant, with annual price increases in double digits. However, Bloomberg Economics analysis shows many housing markets are flashing the kind of bubble warnings that haven’t been seen since the run up to the global financial crisis.
Why are housing markets booming?
All over the globe, the reasons for the frenzy are surprisingly consistent:
cheap mortgages, that is, globally low interest rates,
a post-pandemic desire for more space,
increased costs of some materials, especially wood,
lockdowns and border restrictions in some countries mean that many people have more cash to spend, as they haven’t spent so much on international travel and niceties,
As house prices and interest rates increase, so do the risks for both individuals and society. Even without an outright crash (plunge in prices), big mortgages mean borrowers are vulnerable if interest rates rise, they have less disposable income to spend in the wider economy and are more likely to reach retirement still having a mortgage.
For younger people, buying property becomes increasingly difficult, which can disenfranchise youthful generations.
Market regulators, government action, and rapidly growing property prices
While government bodies and regulators are starting to get nervous, there are few signs of meaningful action in most countries, including our own. Most seem to expect the market will start to cool on its own, arguing that a decade-long focus on higher lending standards combined with the prospect of low interest rates for an extended period means there is no obvious trigger for a crash. Despite a lot of speculation in the NZ media and in some NZ political circles, much of the activity is being driven by owner-occupiers rather than investors, who typically don’t immediately sell if prices start to fall or interest rates start to rise.
Below is a quick summary of how things are looking in major overseas housing markets.
Australian house price increases
In the 2020-21 financial year, Australian residential property prices grew at their fastest annual rate since 2004. The Australian CoreLogic home value index rose in June to be 13.5 percent up on a year ago, with prices rising in all state capital cities. However, there are early signs that momentum is coming off the boil.
US housing prices surge
In the US residential housing market, home prices have risen at the fastest pace in more than 30 years. A composite measure of 20 major US cities, which covers areas including Dallas, Miami, New York, and San Francisco, rose 14.9 percent year on year.
Reigning in property prices is a key objective of the ruling Chinese Communist Party, but even they are struggling. While in much of the world the pandemic spurred a dash to the suburbs and beyond, buyers in China piled into top-tier cities where the best jobs and schools can be found.
Existing home prices in those cities rose 9.7 percent in the year to June 2021, despite crackdowns on legal loopholes such as fake divorces, designed to bypass rules on how many properties one family can own.
The bottom line – global house price growth continues
Expect global house prices to continue growing over the next 12 months as the forces that drove this growth are still in place and are showing no signs of disappearing.
Whatever your situation, we’re here to help. Maybe you’re looking to buy a first home, perhaps you’re a property investor seeking to buy more (or sell up and retire), or maybe you’re in an altogether different situation. No matter the case, if you’d like to discuss anything above with a trained professional, then simply book a free initial chat.