Daily Management Review

Experts warn of risk for global economic growth due to housing markets downturn


Activity in real estate markets around the world - from the UK to China and Australia - is slowing, putting pressure on the global economy, which last year showed the weakest growth since the financial crisis, The Wall Street Journal writes.

The inflation-adjusted property price index in 23 countries, calculated by the Federal Reserve Bank of Dallas, rose 1.8% in the third quarter of 2019 compared to a year earlier, while in 2016 it peaked at 4.3%, according to Oxford Economics.

Real estate investments in 18 major economies have fallen year on year for four consecutive quarters, the longest decline since the financial crisis of 2008-2009.

The main reason for this trend is the slowdown in global economic growth over the past two years, which has restrained demand for real estate and rising house prices.

According to a January forecast by the International Monetary Fund (IMF), global economic growth will accelerate from 2.9% last year to 3.3% in the current year and 3.4% in 2021, but it will still be below pre-crisis averages.

“This is important because the housing market is a large asset market that could have a pretty significant potential impact on consumer spending,” said Oxford Economics economist Adam Slater.

The dynamics of housing prices in countries around the world is becoming increasingly synchronized. According to the International Monetary Fund (IMF), this can be explained by a number of factors, including the growing tendency for parallel changes in economic growth and interest rates in different countries.

In major cities, such as New York, London and Vancouver, there is another reason for this, the IMF said. In the period of low interest rates after the global financial crisis, wealthy investors began to buy real estate in large financial centers. As a result, real estate prices in these cities began to synchronize just like the dynamics of stock and bond markets.

source: wsj.com