It’s very easy to become parochial when it comes to thinking about property markets.
We focus on the slowdown in the UK market and we ponder what’s causing it. Could it be new rules on landlords? Could it be the crackdown on overseas investors? Could it be Brexit?
But this really is less than half the picture.
Because the residential property slowdown isn’t just happening in the UK – it’s happening pretty much everywhere.
Why residential property matters
We talk about property a fair bit in Money Morning. There are a few reasons for that. Firstly, everyone’s obsessed with it. So it’s fair game as a topic.
Secondly, it’s an important asset class. Stockmarket crashes grab headlines, but the truth is the market can slide hard without ever really scratching the sides of the economy. But if the housing market crashes, you tend to know about it, because typically there’s a lot of debt involved.
Thirdly, it’s usually a pretty big item on the household balance sheet. I think it’s fair to say that the majority of us aspire to owning a home and clearing the mortgage. And those who already have might be keen to use it to fund other things – retirement, deposits for offspring, or even an inheritance (although my advice on this latter point is spend the lot, your kids want you to have fun – and if they don’t, they don’t deserve it anyway).
Anyway – so that’s why we go on about property. But as I said in the intro, it’s easy to get a bit too fixated with what’s going on locally. That can lead you to the wrong conclusions. After all, there are a lot of legislative changes that are affecting the UK housing market right now, for example.
But it’s not just the UK. House prices are hitting a wall almost everywhere.
Take Australia. The land down under has long had one of the most expensive property markets in the world. It barely winced during the 2008 financial crisis, despite carnage everywhere else.
And yet now, it finally appears to be losing steam. Prices in Sydney fell by 4.5% in the second quarter, while prices in Melbourne slipped too.
Australia is far from alone. Hot global markets everywhere are slowing down. Canada is another good example.
And now we’re seeing it happen in the US as well. As Bloomberg reports: “The US housing market – particularly in cutthroat areas like Seattle, Silicon Valley and Austin, Texas – appears to be headed for the broadest slowdown in years.”
The number of home sales (of existing homes as opposed to new builds) fell in June for the third month in a row. New builds are selling at the slowest pace in eight months.
Meanwhile, the inventory of unsold homes – the amount of supply on the sidelines – is rising again. Prices in May were up by 6.4% year-on-year (so a lot stronger than in the UK, for example), but that’s the smallest annual gain since 2017 – and over the last three months, prices have risen at their slowest rate since 2012.
What’s interesting about the US housing market is that historically, despite the fact that it bore so much responsibility for the 2008 crash, it has been a relatively well-behaved property market. Over the very long run, US house prices have only risen in line with inflation. You can’t say the same for the UK.
So the fact that it, too, is starting to struggle, suggests that this isn’t purely a bubble market phenomenon.