Low-interest rates, lax-lending and speculative fever, drove a boom in property demand, size and opulence over the past decade in most of the world’s major cities. Now home prices are unaffordable for most and debt is maxed out everywhere, just as aging owners are looking to cash out and lower expenditures en masse. The predictable result is a massive supply of expensive properties with few able and willing buyers, and this is having similar effects everywhere.
A significant drop in prices back to more affordable levels will be part of the solution, but even then the scale, maintenance, taxes and annual fees on many properties will continue to make them unappealing to a more frugal population focused on expense and debt-reduction as well as higher personal saving rates. This will continue to put pressure on industries, companies and economies that are today highly-levered on the space. See Stockholm’s high-end apartment prices struggling under sinking prices and demand:
The troubles are also raising warning flags for the broader economy. The booming housing market has been a key component of the fast growth in recent years, but is now emerging as one of its greatest risk. Some economists see construction dropping 30 percent from 2017 to the end of this year, taking a significant bite out of economic growth…
Michael Grahn, chief economist in Stockholm at Danske Bank A/S, predicts home prices have further to fall, which will kill more projects and may possible mean the end of some of the smaller developers.
“Producers have been building too expensive homes during a number of years when people were willing to pay no matter what,” he said. “That time is over, they will struggle to sell those expensive homes.”
Meanwhile luxury homes in Greenwich, Connecticut are repricing amid similar dynamics, see Wealthy Greenwich Home Sellers Give in to Market Realities:
The median price for a home in Greenwich dropped by 16.7% last year to $1.5 million in the fourth quarter of 2018, according to a recent report by brokerage Douglas Elliman. On the luxury end of the market, characterized by the top 10% of sales, prices dropped by 18.8%. Mr. Miller said that trend continued into the first quarter of 2019, estimating that the median price was down by more than 25%.
The average time a luxury home sits on the market in Greenwich is 357 days from its most recent price adjustment, Mr. Miller said. The only segment of the market performing well appears to be smaller, entry-level homes close to the train station, which are being snapped up by a new generation of buyers. The lowest priced condos currently on the market in that area start at around $330,000, according to Zillow.
In some cases, re-purposing will be needed to convert inefficient single-use properties into multi-family/multi-purpose. Necessity will be the mother of invention, as usual, and the restructuring process is likely to continue over the next decade, if not longer.