U.S. housing gains look fat on global scale

Nov. 15, 2015

Updated 12:00 p.m.

REGISTER FILE PHOTO

The swift rebound of U.S. home prices looks a bit rich when you place the gain on the world stage.
More than a few folks are squeamish about our housing recovery’s durability, with nerves on high alert after the wild gyrations in real estate before, during and after the Great Recession.
To get some context, I filled my trusty spreadsheet with a collection of global home-price indexes from U.K.-based real estate tracker Global Property Guide that were adjusted for local inflation. I learned that the U.S. home price upswing looks fairly strong – and that is both good and a tad worrisome.
U.S. housing was up 17 percent after inflation, the eighth best in my global ranking of 33 nations. Two-thirds of this group – nations with data published for the past four years ending in 2015’s first half – registered price gains over that period, and the median inflation-adjusted increase was 9.2 percent.
As we often observe when discussing Orange County housing trends, real estate can be a very local business. That’s also true when you look across the world, where you can see global economic patterns influencing home- price movements.
Take the rising commodity prices that fueled many top global housing markets. That upswing has now ended, and soft commodity markets have become a cause of concern for entire national economies, no less their housing markets.
Look at the world’s top housing market over the past four years – the United Arab Emirates, which was up 56 percent. Oil wealth drives that economy, and oil’s recent misfortunes have hurt: UAE home prices dropped 12 percent in past 12 months.
Or ponder the economy of Brazil, which has gyrated up and down with suddenly weakened commodity prices. Its 24 percent, four-year home-price gain – sixth best – still includes a 3.5 percent drop in the past 12 months.
China’s powerful economy swings national economies, and housing, too.
The neighboring city-state of Hong Kong ranked second in global home-price gains, up 38 percent in four years. It has benefited from China’s boom, so far.
Taiwan has somewhat similar economic attributes to Hong Kong. Its home prices rose 28 percent since 2011 but fell 2 percent in the past 12 months.
China’s home-price gains, by the way, look pretty middle-of-the pack – up 9 percent in four years – as its economy struggles with an era of fast, but not spectacular, growth.
Not every regional economic engine drives nearby housing markets, however.
Estonia, ranked third, is perhaps the most pro-business economy in the Russian sphere. Its housing prices have enjoyed a boost – up 37 percent since 2011 – by somehow avoiding Russia’s economic woes, ranging from mismanagement to energy-price fluctuations.
Russian home prices are down 24 percent in four years. Only two nations fared worse by my count – the long-running economic disasters of Greece (home prices off 31 percent since 2011) and Cyprus (off 25 percent).
So what does this mixed bag of global results say about U.S. housing?
You could argue that U.S. housing’s outperformance is largely due to the relative strength of the national economy. Domestically, there’s plenty of disappointment in the slow and modest U.S. recovery. Still, our business expansion is one of the globe’s best bursts of growth in recent years.
It’s worth noting that the recent four-year, 17 percent rebound for U.S. home prices was preceded by a 9 percent drop in the 12 months through June 2011, as the recession ended.
And the future of U.S. housing is not risk-free.
Overall economic strength is critical. And does the slow-but-steady growth we’ve gotten used to provide enough muscle to keep the market aloft?
The confidence of American house hunters will be tested in coming months by expected hikes in mortgage rates. Also, how will the high level of economic-anxiety chatter during the 2016 presidential campaign affect homebuyers and sellers alike?
Will rising skittishness mix well with pricey American housing? Two global home-value measures by the International Monetary Fund show U.S. homes priced well above average in relation to national income and compared with typical rents.
Don’t forget that the entire globe can be wrong about housing, too. Four years ago, 19 of the 33 national markets I reviewed had falling home prices – and four of those losses were double-digit dips (Ireland, Greece, Portugal and the Netherlands).
So far in 2015, the American love affair with housing has plenty of company around the globe. How long the infatuation will last is the grand question.