Global Real Estate
Global Economic Research
October 1, 2009
Yet, even a stabilization in housing prices, demand and constructionwould be highly supportive of a broader economic recovery,particularly as the near-term fuel provided by government stimulusspending and inventory rebuilding begins to fade. Homeownershipis a crucial sector of national economies and an important source of wealth for many households, influencing spending, saving andborrowing decisions. It also has significant spillovers to otherdomestic industries, including retail sales, finance & insurance, anda range of professional services (e.g. legal, engineering) andhousehold services (e.g. landscaping, movers, cleaners).
A Synchronized Housing Cycle
The housing boom, and subsequent bust, of the past decade is globalin scope, even as the degree of price change has varied considerablyfrom country to country. In most major advanced economies, realhome prices appreciated rapidly beginning around the mid-1990sand continuing into the latter part of this decade. The strength of thehousing market coincided with a generally robust global economy,low interest rates and in many cases, mortgage market innovationand deregulation.The notable exceptions are Japan and Germany. The bursting of Japan’s stock market and real estate asset bubble in the early 1990shas been followed by steadily declining real home prices since 1992.In Germany, real home prices have been declining since the mid-1990s, after generous post-reunification tax incentives led tosignificant overbuilding. A shrinking population base also continuesto weigh on property values in both countries.The global house price boom all but ended last year, as weak economic growth, rising unemployment, the exhaustion of pent-updemand and overbuilding in many nations bumped up against asevere tightening in global credit conditions. Realhome prices declined in 9 of the 10 countriestracked in 2008. In Australia, inflation-adjustedprices were flat on average, but had moved intonegative year-over-year territory by the second half of the year.Countries that experienced the biggest boom havegenerally faced the biggest bust. Ireland recorded byfar the largest trough-to-peak real appreciation,totalling almost 300% from 1993-2006, based onannual average prices. It has also suffered one of thelargest price corrections to date, at more than 25%.Real home prices in the United Kingdom climbed170% from 1996-2007, but have subsequently fallenclose to 20%.The somewhat smaller, though still sizeable pricegains in Spain (128% from 1997-2007), France(111% from 1998-2007) and Australia (103% from1997-2008) have been followed by relatively modestprice declines of 11%, 10%, and 6%, respectively, todate. Real price appreciation in Canada (66% from1999-2007) and Italy (61% from 1998-2007) falls atthe low end of the pack, as does the subsequentretracement (8% and 1%, respectively, based on thelatest data available).The U.S. market stands out from the rule. Thecumulative trough-to-peak rise in inflation-adjustedU.S. home prices was just 50% from 1996-2005, thelowest among the eight countries with price gains.Yet, U.S. residential real estate has suffered the
Despite their importance in influencing economic outcomes, housing prices are often not among the ‘official’ data gathered by nationalstatistical organizations. Rather, they are usually collected by real estate organizations or private research institutes. Indeed, amongeconomic and financial variables, home prices are possibly one of the more problematic, given vastly different concepts, measurementapproaches and data availability across countries. In many countries, there are several competing measures available. In others, suchas Japan, no dwelling price statistics are available and land prices are usually used as a proxy. The frequency of the published datavaries from monthly to annual. Where available, we have used average prices of existing homes sold. The detailed sources to the hous-ing price statistics on page 10 are as follows:Australia: Price index of established houses, weighted average of 8 capital cities. Quarterly. Australian Bureau of Statistics.Canada: National average price of MLS residential sales. Monthly. Canadian Real Estate Association.France: House price index of existing homes. Quarterly. National Institute of Statistics and Economic Studies (INSEE).Germany: Resale house price index. Annual. OECD.Ireland: National average price of second-hand houses. Quarterly. Irish Department of the Environment, Heritage and Local Government.Italy: Resale house price index, average of 13 urban areas. Semi-annual. OECD.Japan: Nationwide urban residential land price index. Semi-annual. Japan Real Estate Institute.Spain: Average price of second-hand houses. Quarterly. Bank of Spain.United Kingdom: ODPM mix-adjusted house price index, pre-owned dwellings. Monthly. U.K. National Statistics.United States: National average price of existing home sales. Monthly. National Association of Realtors.