3 global housing bubbles: Cautionary tales for US real-estate market – Business Insider
The United States is not the only country facing a housing downturn.
In countries across the globe, rapid home price growth fueled by lackluster housing supply and robust investor activity have distorted local housing ecosystems — especially in Canada, New Zealand and Australia.
According to a research note from multinational investment bank Goldman Sachs, each of these markets are poised for “sizable home price declines” throughout 2023. In Canada, residents are facing a 6% decline in home values, while the rate stands at 18% and 13% in New Zealand and Australia, respectively.
Although US prices are projected to fall by just 3%, these countries each have unique housing challenges, they all serve as a cautionary tale for the frosty US real estate market.
Canada and the US share a similar challenge: They don’t have enough homes for all the people who want to buy.
In both countries, years of underbuilding and rampant investor activity have led to spiking prices and waning demand.
According to Canada’s national housing agency CMHC, the country needs to build a whopping 5.8 million homes by 2030 to stunt its affordability crisis. The task may be hard considering the country — just like the United States — is facing a shortage of construction workers and exorbitant homebuilding costs.
“There are supply issues, labor shortages at the moment and the cost of financing is going up,” Aled ab Iorwerth, the deputy chief economist of Canada Mortgage and Housing Corp, told CBC News.
While home sales and prices are now falling in Canada due to rising interest rates — much like what’s happening in the US — the country’s dearth of housing remains a hurdle to stabilizing its market. Although Prime Minister Justin Trudeau’s government has attempted to boost supply by introducing a two-year ban on home purchases by foreign investors, housing experts say more will need to be done.
“I don’t think prices are going to fall as a result, though I do think it takes away at least some of the competition in what is the most competitive market in Canadian housing history,” Simeon Papailias, the founder of the real-estate investment firm REC Canada, told Bloomberg, adding that it’s unlikely that a “two-year Band-Aid” would have an effect on a fundamental lack of homes.
New Zealand’s housing market is an example of what could happen when a nation’s young adults can no longer afford the dream of homeownership.
Home to some of the world’s most expensive property markets, the country’s affordability woes have been exacerbated by inflationary pressure and interest rate hikes. Many of New Zealand’s would-be first time home buyers are priced out, and it’s led to a severe housing downturn.
It sounds all too familiar.
Just like in the United States, home prices in New Zealand spiked during the onset of the Covid-19 pandemic. Similarly to Canada and the US, the growth was stimulated by heavy real estate investor activity.
Its government attempted to fix the problem by introducing several billion-dollar measures, which included raising the amount of loan or grant money single buyers could receive from the government and increasing taxes for real estate investors.
But the provisions have not been enough to solve the country’s housing disparities.
As New Zeleand’s housing crisis escalates, The Guardian reports that less and less of the nation’s young buyers can afford home purchases. With the median home price sitting at $741,000 as of June of this year, it’s no surprise that so many of the nation’s young adults are now priced out of homebuying. It’s an echo of the US’ crisis where the median home price is $435,000 and as of 2019, an estimated 70% of millennials can not afford to purchase.
Young buyers’ absence in the New Zealand market has helped to push the country’s homeownership rate to the lowest level in 70 years and intensified its housing downturn.
“The property crisis has implications right across the generation spectrum,” one 29-year-old told the Guardian. “Under the current model, a lot of people are losing out and a select few are winning.”
Australia has not escaped the housing slowdown gripping global real estate markets.
Much like the US and New Zealand, the fight against inflation has led to mortgage rates rising, which has given way to lower demand and home prices falling. As home buying activity falls in Australia, economists are fearful the country is bracing for a housing crash.
Data from CoreLogic shows that in August, in every Australian city but Darwin, home values experienced a decline. The company says the combined value of residential real estate in Australia fell to $9.7 trillion in August, marking the steepest quarterly decline in home values since the 1980s.
“We’re seeing housing values falling faster now than what we saw during the global financial crisis and also during the early 1990s and early 1980s recessions,” Tim Lawless, a research director at Corelogic, told the Guardian.
“With inflation likely to remain stubbornly high, the outlook for interest rates is for further rises throughout the rest of the year and into 2023, adding additional downside risk for housing demand,” Lawless, said in a housing report, adding that home value declines in Sydney and Melbourne are “likely to spread to other capital cities and regional markets over the coming months.”