Sales and prices in developed countries are losing momentum after signs of recovery last year, Scotia Capital said Thursday. In some cases, the gains have been wiped out as “increasing nervousness over global economic prospects alongside rising food and fuel prices and persistently high unemployment are keeping potential buyers on the sidelines.”
While cheaper housing will eventually benefit those looking to wade into the market, the bank said that it could be some time before the market in countries such as Spain, the United States and the United Kingdom recover.
The process of repairing bloated public and household balance sheets points to a protracted period of subpar economic growth among debt-heavy developed nations that will restrain household borrowing and spending,” the bank said in a report. “A generally more cautious lending environment also will hold back the pace of recovery.
Highlights from the report, starting with the ugly:
Australia: “Australia’s seemingly impermeable housing boom has languished in recent months. While benefiting from strong economic growth and low unemployment, record high home prices alongside a series of interest rate increases by the Reserve Bank of Australia (RBA) are eroding the nation’s already highly strained affordability. Average home prices in Q1 were unchanged from a year earlier, and down 3½ per cent adjusted for inflation. While the RBA has put further rate hikes on hold for now, the eventual resumption of monetary tightening will reinforce the more muted housing outlook.”
U.K.: “Real estate markets also took a step back in early 2011 following a shortlived recovery last year. Average inflation-adjusted home prices were down 4 per cent y/y in Q1. Notwithstanding ultra-low borrowing costs, recent tax breaks for home buyers and an easing in lending conditions, aggressive fiscal austerity measures and persistently high unemployment will continue to depress activity in the near-term.”
Spain: “Spain’s three-year and counting housing slump shows no sign of letting up. Following steep price declines from 2008-2010, average inflation-adjusted home prices were down more than 8 per cent y/y in Q1 (and a cumulative 20 per cent from their peak). Prices are likely to fall further in the coming year given a massive glut of unsold homes, soaring double-digit unemployment, the elimination of mortgage funding for low income families at the beginning of 2011 and a dearth of foreign vacation property buyers. Average home prices were also still declining in Italy as of the end of 2010.”
U.S.: “Real estate markets have softened again after some encouraging signs of bottoming last year. Average inflation-adjusted home prices were down 5 per cent y/y in Q1. High unemployment and tight credit availability are restraining demand, while a large volume of distressed properties is adding to the downward pressure on prices. The modest pickup in sales over the past six months has been primarily of investor-driven foreclosed properties, with little evidence of broader homebuyer activity since the expiry of purchase incentives in early 2010. Despite gradually improving job markets and near-record housing affordability, the expected addition of at least another 1 million foreclosed properties to the market this year suggests more downside price risk in 2011 after already falling almost 35 per cent (in real terms) from the peak.”
The better:
France: “Average real prices were up 7 per cent y/y in Q1, though weakening global growth expectations may limit further price gains in the near-term. In Germany, for which only annual price data are available, real home prices increased in 2010 for first time in over a decade. Demand and pricing have firmed alongside a strong economy, rising exports and the lowest unemployment rate in three decades. Nonetheless, Germany’s declining population will limit the extent of sustainable price appreciation in coming years.”
Canada: “Reported positive real price appreciation in the first quarter of 2011, with average inflation adjusted home prices up 5 per cent y/y in Q1. The national average, however, is skewed by strong sales, including by foreign buyers, of high-priced properties in the Greater Vancouver Area. Excluding Vancouver, average real prices were up less than 1 per cent y/y in Q1, consistent with a more balanced national market. Housing sales in Canada, while below the record-setting pace seen in at the height of the boom in 2005-2007, are being supported by steady job creation and still attractive borrowing costs. Relatively tight supply is adding to price pressures in several cities. Nonetheless, high home prices, the further tightening in mortgage insurance rules effective mid-March, and the upward drift in fixed mortgage rates this year appear to have slowed demand somewhat, most notably among first-time buyers. We anticipate relatively flat sales volumes and average prices through the latter half of the year.”
Others: “Switzerland reported steady real price increases averaging 4 per cent y/y through Q1, while prices in Sweden were unchanged from a year earlier. Irish property prices rebounded sharply -- and unexpectedly -- in the latter half of 2010, albeit following double-digit declines in both 2008 and 2009. With the Irish economy still marred in recession, and facing an oversupply of housing, the recent upturn will likely prove temporary despite the best housing affordability in a decade.”
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