Last year, Auckland’s biggest real estate company couldn’t sell properties fast enough to keep up with demand in New Zealand’s biggest city.
Grant Sykes, manager of real estate agency Barft & Thompson, said houses were “flying out the door.” “There were moments when agents would stand around the room and be amazed at the prices being achieved,” he told CNN Business.
In one example, a property sold for NZ$1 million. dollars ($610,000) over the asking price in an auction that lasted eight minutes. (Most houses in New Zealand are sold at auction.)
It was in May 2021, when the sale Attracted thousands of bidders who pushed the prices to all time highs. Since then, Barfoot & Thompson’s clearance rate has decreased, according to Sykes, by extending sales times and sending lower prices.
The average time it takes to sell a property in New Zealand has increased by 10 days since October 2021. Real Estate Institute of New Zealand. Sales are down nearly 35 percent and median home prices are down 7.5 percent over the past year.
New Zealand is at the extreme end of a global housing market. The squeeze Which will have a serious impact on the global economy.
Epidemic speed upwho sent the prices. In the stratosphere, running out of steam and house prices are now Fall Broadest phase determination, from Canada to China A downturn in the housing market Since the global financial crisis.
Rising interest rates are driving dramatic change. On central banks a Way to fight inflation have driven rates to levels not seen in more than a decade, with impacts on the cost of borrowing.
US mortgage rates Top 7% Last month for the first time since 2002, just over 3% from a year ago pull back Inflation eased slightly in November. In the European Union and the United Kingdom, mortgage rates have more than doubled since last year, chasing buyers from the market.
“Overall, this is the most worrisome housing market outlook since 2007-2008, with markets poised between the possibility of a modest decline and a much stronger 15%-20%,” Adam Slater said a leading economist at Oxford Economics, a consultancy. .
A key factor determining low prices? Unemployment. According to Slater, a sharp increase in unemployment can lead to forced sales and foreclosures, “where heavy discounts are common”.
But even if the price correction is mild, a slowdown in the housing market can have serious consequences as housing transactions spur activity in other sectors of the economy.
“In an ideal world, you would have a little foam blown over the top. [of house prices] And everything is fine. It’s not impossible, but it’s more likely that the housing downturn will have dire consequences,” Slater told CNN Business.
House prices are already falling in more than half of 18 advanced economies, including Britain, Germany, Sweden, Australia and Canada, where prices fell by about 7 percent from February to August, according to Oxford Economics.
“Data lags probably mean that most markets are now seeing falling prices,” Slater said. “We’re now in a pretty clear early downturn and the only real question is how steep it is and how long it will last.”
House prices in the United States — which rose the most since the 1970s during the pandemic — are also falling. Economists at Goldman Sachs expect a decline of about 5%-10% from the peak reached in June to March 2024.
Dallas Fed economist Enrique Martinez Garcia wrote that in a “pessimistic” scenario, U.S. prices could fall as much as 20 percent. Blog post recently.
New home prices in China fell at their fastest pace in seven years in October, according to official data, reflecting a deepening crisis in the property market that has gripped the country for months. And it is taking a heavy toll on its economy. Home sales have fallen 43 percent this year, according to China Index Academy, a research firm.
Sales are slipping elsewhere, too, as banks take a more cautious approach to lending and homebuyers delay purchases in the face of high borrowing costs and a worsening economic outlook.
UK house sales in September were 32% below the previous year’s level, according to official figures. A closely watched survey showed that new buyer inquiries in October fell to the lowest level since 2008 for the sixth month in a row, excluding the early months of 2020 when the market was largely shut down due to the pandemic.
In the United States, existing home sales fell more than 28 percent year over year in October, the ninth straight monthly decline, according to the National Association of Realtors.
Mortgage rates in the world’s 25 largest cities tracked by UBS have nearly doubled on average since last year, making buying a home much less affordable.
According to UBS, “a skilled worker in the service sector can afford about a third less living space than before the pandemic.” Global Real Estate Bubble Index.
Along with putting off new buyers, the sharp rise in rates has surprised existing homeowners accustomed to over a decade of ultra-low mortgages.
In the UK, more than 4 million mortgages have been issued to first-time buyers since 2009, when rates were close to zero. “There are a lot of people who don’t appreciate what it’s like when their monthly expenses go up,” said Tom Bull, head of UK residential research at broker Knight Frank.
In countries with a large share of variable-rate mortgages, such as Sweden and Australia, the shock would be immediate and could increase the risk of forced sales that drive prices down sharply.
But even in places where a large proportion of mortgages are fixed, such as New Zealand and the UK, the average maturity of these mortgages is quite short.
“This means that a lot of debt will be subject to (often significantly) higher rates over the next year or longer than previously thought,” Slater wrote in a report last month.
While interest rates have been the catalyst for the housing market slowdown, the jobs market will play a large role in determining how low prices eventually fall.
Modeling of past house price crashes by Oxford Economics shows that employment is the decisive factor in determining the severity of recessions, as rising unemployment increases the number of forced sellers.
According to Innes McPhee, Chief Global Economist at Oxford Economics, “History shows that if labor markets can remain strong, further benign corrections are more likely.”
Employment levels have recovered in many advanced economies since falling at the start of the pandemic. But there are early signs that labor markets are starting to cool as weak economic growth affects demand for workers.
After a strong recovery at the start of the year, the number of hours worked was 1.5 percent below pre-pandemic levels in the third quarter, down 40 million full-time jobs, according to International Labor Organization estimates. was equal to the loss of
The ILO said in an October report that “the global labor market situation has worsened in recent months and current trends show a decline in job vacancies and a significant slowdown in global employment growth in the last quarter of 2022.” will come.”
The unemployment rate in the United States rose to 3.7 percent in October. Job vacancies in the UK have fallen to a one-year low. The UK Office for Budget Responsibility expects unemployment to rise by 505,000 to a peak of 1.7 million in the third quarter of 2024 – with an unemployment rate of 4.9%.
“A decisive rise in unemployment is a huge risk to housing markets,” said Oxford Economics’ Slater.
Most market watchers are not expecting a repeat of the 2008 housing market crash. Banks and households are in better financial shape, and housing is tight in some countries.
But even a modest drop in home prices will knock confidence, causing homeowners to cut back on spending.
A slowdown in activity will hit many other parts of the economy as the housing market is linked to builders, lawyers, banks, moving companies and furniture stores.
China’s property market accounts for around 28-30% of GDP due to these linkages. According to the National Association of Home Builders, in the United States, housing’s broader share of GDP typically averages 15-18%.
In a worst-case scenario – one in which house prices fall faster than expected and the fall in prices is matched by reduced residential investment and tighter lending by banks. Oxford Economics predicts that global GDP will grow by just 0.3 percent in 2023, instead of the 1.5 percent currently expected.
An additional negative factor compared to [global financial crisis]is that the Chinese housing market is also in recession,” according to Slater. “So rather than offset the effects of the global housing downturn on global output, as was the case after the GFC, the Chinese housing sector contributed to the decline. putting in.”
– Laura contributed to this report.