Global Housing Markets Take a Turn for the Worse

We present the latest Global Property Guide survey of global house prices for the year ending Q1 2011. Out of 39 countries with timely house price statistics for the year to Q1 2011:

16 countries had increases in house prices (inflation-adjusted) during the year to Q1 2011, and
23 countries had house price reductions.

So the general trend for the year to Q1 has been down. That said, housing markets worldwide have entered a period of relative calm. The great price falls of the past 3 years are over. Rapid 'bounce-backs' from extreme price declines in regions such as the Baltics have largely spent their course.

Yet there is still cause for concern. Consider that during the first quarter of 2011:

House prices rose (q-o-q) in 12 countries (inflation-adjusted)
House prices fell (q-o-q) in 27 countries

Twelve up, 27 down - is this a case of seasonality? No. During the first quarter of 2010, house prices rose in 20 countries and fell in 16 countries.

So these price declines are somewhat worrying. As inflation and interest rates rise, things are unlikely to get better. As Global Property Guide research has repeatedly argued, housing markets globally are generally over-valued, and this excess valuation still needs to be unwound.

Our presentation uses price changes after inflation, giving a more realistic picture than the more upbeat nominal figures usually preferred by real estate agents.

Broad Conclusions:
Europe's housing markets have generally been weak

For some exceptional 'hard hit' countries, this past year actually brought an acceleration of the crisis:

Ireland had the worst annual price decline among countries in our survey, with house prices down 13.1% over the year to Q1 2011, after a 13.6% decline last year.
Spain's prices fell 7.9% over the year to Q1 2011, after a 5.8% fall last year

Many housing markets of countries badly hit by the crisis have continued to fall

Many European countries whose house prices declined strongly last year continued to experience price falls this year, though at a much slower pace, including Iceland (-0.8%), Poland (Warsaw) (-2.7%), Slovenia (-3.8%), Lithuania (-4.4%), the Slovak Republic (-5.6%), Croatia (-6.7%), and Bulgaria (-10.2%).

'Bounce-back' European countries which initially recovered vigorously from dramatic house price declines are now seeing slower recoveries.

Standard-type apartments in Riga, Latvia were up 4.1% over the year to Q1 2011. But this was in sharp contrast with the double-digit rise during the year-to-end Q3 2011 (+24.7%).
Prices of dwellings in Tallinn, Estonia rose 2.5% over the year-to-end Q1 2011. However, the housing market is at something of a standstill, with a -1.8% drop during the first quarter this year.

The Nordic countries (Norway aside) are cooling

In Sweden, prices of 1 to 2 dwelling buildings dropped 0.5% y-o-y to Q1 2011, after 10% growth a year earlier. The Swedish housing market has cooled following five interest rate increases, and a cap on mortgage-to-value ratios of 85%.
In Finland, prices of old dwellings rose a meager 0.7% y-o-y to Q1 2011, after surging 11.2% during the same period last year.

Several other European markets are cooling too

In the United Kingdom, average house prices were down 4.4% y-o-y to Q1 2011, after a 5.5% rise the previous year. Homebuyers are currently reluctant to purchase or invest in the property market as there are fears over the economic outlook. The government's austerity measures are already having a real impact on household budgets.
In Portugal, the average housing bank evaluation slumped 6.2% y-o-y to Q1 2011, after a 3.3% rise the year before. The Portuguese housing market faces weak demand, high unemployment (11.1% in Q4 2010) and a very depressed level of consumer confidence.
In Germany, apartment prices fell 0.1% y-o-y to Q1 2011, after a rise of 0.1% the previous year. Given Germany's strong economic performance, demand is expected to strengthen in the following months.

Yet all is not gloom for Europe

Norway's housing market was Europe's best performer, with house prices up 6.9% y-o-y to Q1 2011, buoyed by the high growth in real wages and a relatively modest interest rate. Norway has a fast-growing population, and a relatively low rate of construction of new properties.
In Vienna, Austria, house prices were up by 6.5%, the 7th year of continuous house price increases
In France, prices of existing dwellings rose 2.7% y-o-y to Q1 2011. House prices have been stable since Q2 2010.
In Switzerland, apartment prices continued to rise, as they have for the past 10 years. During the year to Q1 2011, apartment prices were up 1%.

US housing markets remain weak

Over the year to Q1 2011, house prices in the United States fell by 7.5% from the same quarter a year ago and were down 3.7% on the latest quarter, according to the FHFA's purchase-only index. The market is still heading down. This is the steepest quarterly decline since late 2008. The United States remains weak due to a massive supply overhang and weak demand.

Asian housing markets have generally continued to surge

Hong Kong was up 18.8% y-o-y to Q1 2011, after a massive 27.9% rise during the same period the previous year. Hong Kong house prices also surged 5% during the 1st quarter of 2011. The market-cooling Special Stamp Duty (SSD) introduced in Q4 2010 only had a short-term impact, no doubt partly because Hong Kong's economy grew an impressive 7.2% (in real terms) y-o-y in the first quarter.
Singapore's housing market was up 8.2% y-o-y to Q1 2011, after a 24% rise during the same period last year. But the authorities in Singapore have tamed the market, and the latest quarter's house price-rises were an insignificant 0.4%.
In Taiwan, house prices increased by 6.8% over the year to Q1 2011 in spite of interest rate hikes last year. Because of this, the government has passed a luxury tax in April to curb rampant speculation in the property market.
Thailand (+4.6%), Malaysia (+3.4%) and Japan (+2.8%) have also seen price rises. But Shanghai, China is weakening (-3.6%).