China house prices have stopped falling. This indicator tends to lead the cycle. It may be a false dawn, as happened in 2023---but that was aborted by lockdowns. This time round, the housing market is responding to government stimuli. I have seen several indicators which suggest that China might be close to turning up. So it is at least possible.
The chart shows Corelogic's data (monthly) compared with the quarterly series from the ABS (Australian Bureau of Statistics)
House prices zoomed after the RBA cut interest rates to counter the effects of the Covid Crash. The government also introduced housing stimulus programs. But interest rates have been raised, fast, since. (Lower chart) And the government stimulus has expired.
In Oz, mortgage rates are mostly variable, not fixed as they are in the USA. For most borrowers, the mortgage rate has risen from 2.2% just after the crisis to 6.2%, and monthly payments have risen accordingly. At the same time, wages are rising by much less than inflation. Real incomes are falling. A significant percentage of households are in severe mortgage stress. As households watch house prices falling, and their personal finances deteriorating, they are unlikely to be optimistic about buying property.
It's hard to see house prices rising over the next few months.
It's provisional data based on 80-90% of the sample population, but the trend is obvious. Since it takes many months for the economy to respond to rising interest rates, the decline is likely to continue. A recovery in China might help mitigate the Australian recession, but with Covid deaths and illness soaring there, it's hard to be sure just how strong the probable upturn in China is likely to be. And offsetting that there's the fact that house prices in Australia rose sharply as interest rates were cut to zero during the Covid Crash and have a long way to fall to get back to "normal". A house price crash here in Australia seems all too likely.
This is from CoreLogic's house price indices. I've shown metropolitan Melbourne's index and the 5 major metropolitan areas index. Since interest rates in Australia are likely to go on rising until inflation slows, house prices here are likely to continue to fall for many months.
The consensus is that house prices won't fall very much further. But then at the peak in prices, the consensus was that prices wouldn't fall. The cash rate has gone from near zero to 1.85%, and is certain to rise again. But it's not just that --- our economy is very likely to go into recession, and wages are rising much more slowly than inflation. Bad news for house prices.
From Yahoo News/Bloomberg
The US and European real estate markets are experiencing a downwards shift in prices as buyers fall away, according to the global chief investment officer of Hines, one of the largest closely held real estate investors in the world.
Prices have fallen by about 5% to 10% compared to a year earlier in some areas, according to David L. Steinbach, with Europe following a trajectory set in the US. “I think we’re in for a rough few months,” he said. “This year is going to be choppy water.”
Businesses are re-examining expansion plans in light of higher costs, Steinbach said in an interview in Abu Dhabi. Rising interest rates are feeding through into higher funding costs, further dampening demand, he added.
“Higher inflation is without a doubt making its way into private real estate,” Steinbach said. “The bidding pools are becoming thinner.”
Real estate can provide a hedge against inflation as some leases are indexed to take account of rising prices. But more than a decade of rock bottom rates and anemic returns in bond markets pushed up prices to record levels in many areas, making them vulnerable to rising borrowing costs.
Houston, Texas-based Hines manages about $90 billion in real estate assets with a presence in 27 countries. Steinbach was in Abu Dhabi meeting some investors in its funds which also partner with it on projects.
The market for office space has been hardest hit in the US, Steinbach said, with demand for rental housing also starting to thin. “Some sponsors are having some trouble getting financing, so that alone is reducing the bidding pool,’ he said.
