Daniels MPV condos.The bursting of a massive real estate boom. The global economy is already under intense pressure from inflation and stock markets, but be wary of another threat that may already be on the way: the bursting of a massive housing boom.Please Visit: Daniels MPV condos to Get Your VVIP Registration Today!
With central banks around the world rapidly raising interest rates, soaring borrowing costs mean the housing market may have reached its limit. This can be seen in countries such as Canada, the United States and New Zealand, where the once-hot residential real estate market has suddenly become deserted.
House prices have soared over the years because mortgage rates have been at their lowest levels, while governments have introduced stimulus policies and an epidemic-driven home-office trend. the housing market has entered a hot phase. The price-to-rent ratio and the price-to-income ratio in 19 OECD countries are higher than they were before the 2008 financial crisis, suggesting that house prices have deviated from fundamentals, according to an analysis by Bloomberg economy.
As a result, curbing the house price bubble has become a key part of many policymakers’ efforts to curb the fastest inflation target in decades. But as markets worry about the prospect of a global recession, a slowdown in the housing market could have a knock-on effect and deepen the recession.
Rob Subbaraman, head of global market research at Nomura Holdings, said: “the danger is that the business and financial cycles decline at the same time, which could lead to a longer-lasting recession. A decade of quantitative easing fuelled the housing bubble, but now we may soon be on the other side of the situation, as housing affordability is tightened and debt-servicing ratios are likely to rise sharply. ”
As the risk of bad debts increases, this will discourage bank lending and stifle the flow of credit on which the economy thrives. In the US and Western Europe, the real estate crash that triggered the financial crisis has plagued the banking system, governments and consumers for years.
To be sure, a crash like the one in 2008 is unlikely to happen again. Although lending institutions have tightened lending standards, household savings remain strong and there is still a housing shortage in many countries. The labour market is also strong, providing an important buffer.
“the fall in house prices will have a direct impact on consumer spending and the economy as a whole, as real estate usually accounts for a large part of household wealth,” said Tuuli McCully, Asia-Pacific Economics head of Fengye Bank. But nonetheless, as household balance sheets in many major markets remain healthy, I am not particularly worried about the risks associated with house prices and the global economy. ”
However, Niraj Shah, an analyst at Bloomberg Economics in London, still warned that the risk of a sharp fall in house prices was clearly greater when monetary policy was tightened at the same time around the world. So far this year, more than 50 central banks have raised interest rates by at least 50 basis points at a time, and it is expected that there will be further interest rate increases in the future. In the US, the Fed had earlier raised its main interest rate by 75 basis points, the biggest increase since 1994.
The real estate markets in New Zealand, the Czech Republic, Australia and Canada are now among the most frothy in the world, particularly vulnerable to falling house prices, according to Bloomberg Economic data. In the eurozone, Portugal faces particularly significant risks, as do Austria, Germany and the Netherlands.
Elsewhere in Europe, there has been a dramatic shift in housing demand in Sweden, which has undoubtedly raised concerns in the country at a time when debt accounts for 200 per cent of household income. In the Asian region, South Korean house prices also look vulnerable, according to an analysis by Standard & Poor’s Global Ratings.