Falling masonry - Fund Strategy
Falling masonryFund Strategy, UK - 6 hours agoIn Spain, where many Britons have bought property, house price growth fell to under 4% in the first three months of the year, below the country's 4.5% ... |
Falling masonry - Fund Strategy Although some European countries are struggling too, others in the continent continue to fare well, with Bulgarian house price inflation reaching 34% in 2007. America ranks in the middle with an overvaluation of about 11%, but the IMF says that partly reflected the fact that American house prices began to fall in 2007. Approvals for new house purchases were a substantial 46% lower.The picture is little better in the British commercial property sector. At the macro level, higher food and fuel prices push inflation up. Bulgaria led the index with annualised house price inflation of 33.7%. But Asia was not far behind, with growth hitting 31.3% in Singapore and 22.3% in Hong Kong. But instead of how far they can rise, the discussion in many parts of America, Britain and continental Europe is how much they can slide.This represents a significant change to the conditions experienced by homeowners for more than a decade. But it sees a 33% chance of a technical recession - two consecutive quarters of economic contraction. But since the subprime crisis broke in America last year, prices have slid. But the rate of growth is also expected to slow, though not because of the credit crunch. But with house prices falling, buying to let looks like a risky proposition to many potential investors. Capital values fell 1.3% in March alone."There are still several headwinds facing the sector," says Rob Martin, the head of research for Legal & General Property. Countries outside Europe were largely responsible for property price inflation over last year, the firm says. Data from the British Bankers' Association showed 129,338 mortgages worth �15.6 billion were approved in March, representing an annual fall of nearly 20%. Examples of the latter includes America, Denmark and Ireland, it says. Experts fear landlords who overstretched themselves can increase property supply by cutting their losses.British house price data from other sources also paints a picture of falling prices. Experts welcomed the step, but remain unsure how well it will work, since risk-averse banks have tightened lending requirements and favour only borrowers with good credit histories.Mortgage approvals are slumping. For instance, it said prices in Singapore rose steadily throughout 2007. France, Australia and Spain had house price gaps of roughly 20%, according to the model. He says China and India are among the countries whose housing markets are most likely to be hit by monetary tightening. HIMF on house pricesHomeowners have begun to wonder how far house prices will fall now that estate capital values have begun to cool in countries such as America, Britain and Spain. House price growth adjusted for inflation has slowed down in many nations, and real house prices have fallen in some of them over the past year, the international body adds. House prices also soared in developing countries, including many parts of Asia, in what some experts called an unusually synchronised rally in the value of bricks and mortar.Homeowners felt wealthy and boosted spending, particularly in America, increasing economic growth. House prices in 70 Chinese cities rose 10.5% over the 12 months to December, according to the firm's figures. However, he says some areas can do better, such as Hong Kong, since its currency is pegged to the dollar, which means it lowers interest rates when America does.However, all eyes remain on the American property market. However, while house price growth continues to be strong in countries like Iceland and some parts of Asia, other experts warn the picture can change even in healthier markets. In other nations, the ratio is close to or below the trend, but residential investment has declined in some of them, including America, Australia and Ireland. In the latter eventuality, house prices can suffer still more, it says, but adds that if house price falls extended into 2010, then the three-year slide can amount to 25% in total.Figures from the Halifax show that British house prices fell by 2.5% in March alone. Instead, the problem in Asia is inflation, following often high economic growth.Some regional central banks have already raised borrowing costs, which are expected to rise further to curb soaring food and fuel costs. Its house price-to-earnings ratio was 5.66 in the first quarter of 2008, well above the long-term average of 4.05 based on data going back to 1983. Knight Frank's research said the American housing market remained troubled, with the pace of house price falls intensifying. Meanwhile, in Hong Kong property prices overall rose 24% last year, with "almost half of that growth occurring in the last quarter alone", the firm says. Monetary authorities typically raise key interest rates to stem inflationary pressure."Cruz points out that most Asian housing markets were still below the peaks they scaled before the 1997 Asian financial crisis. Moving to the residential investment-to-GDP ratio, the IMF says it "appeared to be significantly above the historical trend in several economies at the end of 2007, especially Spain and Denmark, but also France, Italy, Finland, and Belgium". Much depends, they say, on how severe the global credit crunch and likely American-led world economic slowdown becomes. Our analysis favors [sic] the mild recession outcome."Goldman Sachs, an investment bank, forecasts more American house price falls over roughly the next 18 months, and expects a cumulative decline of 30-35%. Price rises exceeded 20% in some Chinese cities, according to Knight Frank. Prices in the Reykjav�k region rose by almost 19% during 2007," Knight Frank says. Record levels of defaults in the sector led to huge losses on securities whose value is linked to subprime loans. Second, it also looks at the size of the rise in the residential investment-to-GDP ratio experienced by different nations during the past 10 years. Some experts say steep price falls are likely as the ratio returns to, or even falls below, the average figure.Data from Nationwide shows that British house prices fell five months in a row up to March. Spanish property firms are said to be braced for house price falls in the next year or two.Property prices are still rising in many Asian countries (see box, page 26). Sunil Jagtiani reports from Hong Kong on how the shaky underpinning will affect global economic growth.House prices are still one of the preferred topics of dinner table conversation. Taking into account the dip in prices in the final months of 2007, they will end next year roughly 20% lower than their 2007 peak."The consultancy expects British economic growth of about 1.7% in 2008 followed by 1% next year. That, in turn, led to an international credit crunch, which central banks in rich countries have been scrambling to alleviate.But borrowers face higher interest rates than in the past, while those with blemished credit records struggle to get loans at all. The benchmark IPD UK Property index shows that the 12-month total return from commercial property up to March fell by 10.7%. The biggest gaps, according to the IMF model, are in Britain, Ireland and the Netherlands, with house prices in these countries "about 30% higher than justified by fundamentals" based on developments between 1997 and 2007. The difference between the prices projected by the model and actual values is the "house price gap" or degree of overvaluation. The firm's global house price index indicated worldwide house price inflation of 8.2% over the last three months of 2007, down from 9.7% over the fourth quarter of 2006. The IMF says that in America, "residential investment can decline by another 0.5 to one percentage point of GDP in the coming quarters". The IMF says that real residential investment as a share of gross domestic product has "declined in several countries, particularly in Australia, the US, and especially Ireland". The IMF's house price model includes an affordability ratio - of house prices to disposable income - and other factors, such as income growth, interest rates, credit growth and changes in share prices and the working-age population. The international body concludes that many local factors have affected the housing markets in different nations. The international body tries to assess how vulnerable countries are to a housing market correction by looking, first, at to what extent fundamentals fails to explain the rise in their house prices. The International Monetary Fund (IMF) analysed the global housing market in the latest edition of its World Economic Outlook report, which was published last month. The International Monetary Fund estimates overall losses because of the debacle can approach $1 trillion (�502 billion).Outsized, multi-billion dollar subprime losses at banks impaired their balance sheets and caused them to become wary of new lending. They have also begun to fall back in countries such as Britain, Denmark and Ireland.The subprime crisis involves American homeowners with riskier credit histories who were unable to afford mortgage payments. They have begun reassessing their spending plans, a process that points to significantly slower economic growth in the months ahead. Unusually, the relatively little-known city of Urumqi, rather than a metropolis like Shanghai, led the gainers, with a price rise of about 25%. We have also nudged down our forecasts for 2009, from a fall of 8% to a fall of 10%.
