It has been a dismal year for house prices, according to the Global Property Guide’s latest survey of publicly-available house-price time-series for 2008. And seen from a global perspective, the downturn is still accelerating.
The collapse of the world’s housing markets can be seen from three points of view, and unfortunately, all of them reinforce the bad news, according to the Guide.
The downward price momentum accelerated in 2008, as compared to 2007. Only Germany and Switzerland saw positive momentum (a slower downward house price movement than last year, or faster upward movement), while 28 countries saw their housing market momentum deteriorating.
During 2008 only 8 out of 32 countries saw house prices rise, after adjustment for inflation, while 20 countries experienced house price falls.
In contrast, during 2007, the downturn was just beginning, and only 6 countries saw house prices fall, while 24 countries saw house prices rise.
Many house-price falls in 2008 were extremely severe. Countries with house price falls of over 10% were Latvia (Riga) (37%), Lithuania (Vilnius) (27%), the US (20%), the UK (18%), Iceland (16%), Ireland (12%), and the Ukraine (Kiev) (12%).
In the final quarter of 2008, the downward price momentum significantly accelerated, as compared to Q3, suggesting that the situation is deteriorating.
During 2008’s final quarter, 9 countries saw house price falls of 5% or more in just that quarter. Price drops of more than 10% during this single quarter occurred in Latvia (Riga), which saw price falls of 15%, in Ukraine (Kiev) (13%), and in Hong Kong (15%). Other countries with Q4 house-price falls of 5% and over, included the UAE (8%), Lithuania (7%), Iceland (7%), Singapore (6%), Bulgaria (5%), and the UK (5%).
Europe has major problems
Latvia and Lithuania suffered the hardest price falls both in nominal and real terms. In Riga, Latvia, the average price of standard-type apartments plunged 37% in 2008. These price falls were triggered by increased interest rates, and by the tightened credit rules which Latvia imposed in 2007.
Average prices of apartments in Vilnius, Lithuania, fell by 27%. House prices started slowing in mid-2007, and crashed in early 2008.
House prices in the UK plummeted by 18% in 2008. Although mortgage interest rates dropped slightly, to 4.48% in December 2008, the number of loan approvals for house purchases fell 58% in 2008.
There is serious trouble in Iceland (house price fall of 16%), Ireland (12%), Ukraine (12%), Malta (9%), Portugal (8%), France (8%) Finland (7%), Norway (6%) and in Spain (6%).
North America’s woes
In the U.S., the centre of the global financial crisis, in 2008 house prices fell 20% according to the Case-Shiller house price index, which emphasizes urban areas. OFHEO and FHFB figures, which are associated with Fannie Mae and Freddie Mac loans and have somewhat lost credibility, suggest a smaller decline of 6% and 3% respectively, in 2008. The U.S. government recently approved a USD 787 bln economic stimulus package, of which 275 bln will be allocated to rescue the ailing housing market.
UAE on shaky ground
In Dubai, UAE, despite the bleak global picture, saw surprisingly large dwelling price rises of 41% in 2008. However during the year’s final quarter, prices fell by 8% in nominal terms due to strongly tightening lending criteria, an increase in interest rates, multiple layoffs, and alarm among buyers.
Forecast: No recovery in 2009
History suggests that in a crash, housing markets take many years from peak year to full recovery. In view of this and of the pessimistic IMF forecast for the global economy, no real recovery is likely in the global housing markets this year.
The IMF has predicted that the world economy will grow by 0.5% in 2009, the lowest level in 60 years. GDP in advanced economies is expected to decline by 2% during 2009. The United Kingdom and Japan will be hit the hardest. Output in the U.K. may contract by 2.8%, while Japan’s may fall by 2.6%.
Growth in emerging economies is expected to slow to 3.3% in 2009, down from 6.3% in 2008. Developing Asia is forecast to be the least affected, with growth of 5.5%. China’s economy is predicted grow by 6.7% in 2009, but this is a substantial decline from 9% growth in 2008.
The positive news is that the US government and several others are acting with vigour, as has the IMF. Nevertheless, there is a long tough road ahead.
