THE bubble that caused a global recession has been a long time deflating. The American housing market began to decline half a decade ago and hasn’t stopped yet. Prices dropped by 5.1% from the year before, according to the latest S&P/Case-Shiller national index. Among markets tracked by The Economist, only Irish homes have fallen further since 2006. Robert Shiller, one of the fathers of the Case-Shiller index, says more hard times lie ahead. Prices may slide another 10-25%, he reckons, as the economy wrings out the excess supply of the bubble years.
By our calculations, however, America’s housing market has overshot the fair-value mark, as measured by the long-run average ratio of house prices to rents. Rents are rising: an increase in the cost of rental housing contributed to May’s robust American inflation data. With home ownership looking a better deal, prices should stabilise. The Case-Shiller index posted a month-on-month increase in April for the first time since July 2010. It was not alone in showing gains. The Federal Housing Finance Agency (FHFA) price series ticked up in April for the first time since May 2010, and the CoreLogic index of home prices, a favourite of the Federal Reserve, notched price rises in both April and May. The pace of sales has been sluggish but an index of pending home sales posted a surprisingly large gain in May.The best news of all may be the ongoing improvement in credit conditions. Delinquencies have trended downward since late 2009. Consumer-debt payments relative to incomes are at a 17-year low and household credit scores are rising. Banks are still being stingy with credit but households are better positioned than they were to take advantage of cheaper homes.
Cheapness is not a word to associate with Hong Kong, the most overpriced market in our analysis. House prices in the territory rose by 23.9% year on year in April. The boom may well be coming to an end, however. Like its counterpart on the mainland, Hong Kong’s government is trying to restrain property markets. A June increase in down-payment requirements is just the latest in a series of measures to cool the housing sector. Sales volumes have declined steadily for six months, and prices are likely to follow.
Explore and compare global housing data over time with our interactive house-price toolChina’s roaring property markets aren’t the only ones in Asia to face a slowdown. In Singapore annual price growth dropped from nearly 18% in the fourth quarter of 2010 to 10% in the second quarter of this year. In Australia boom has turned to outright decline. With commodity markets softening, prices have sagged in resource-dependent cities like Brisbane and Perth. South Africa’s once-buoyant market has likewise flipped from rapid growth to retreat.
Moribund markets are the norm in most of Europe but France is bucking the trend. French home prices fell faster than the euro-zone average during the crisis but have rebounded sharply enough to cause some consternation. The ratio of prices to rents is almost 50% above the long-run average. French officials blame tight supply but the government has acknowledged the possibility of “overvaluation”. With housing, there’s always somewhere to worry about.
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