Over a decade on, the global real estate market is still feeling the scars of the so called “Great Recession”. And that’s no surprise, considering the effects of the 2008 crisis on significant markets:
- The recession caused the single biggest disruption to the US market since the Great Depression.
- In the UK, prices plummeted at record rates in 2008.
- In the rest of Europe, countries such as Ireland, Spain, and Ireland suffered a complete “collapse of local real estate markets” (page 64 of the linked report).
- Australia, on the other hand, continued its upward growth and can currently boast 27 consecutive years without a slide. But is the Australian market now poised for a burst bubble?
In this bird’s-eye view report, we’re going to provide a quick-fire summary of recent real estate trends (focusing primarily on the residential market), what you can expect from different markets, and some of our own projections for the future. The global real estate industry is still dominated by a select few countries, with the top 20 markets representing over 80% of the total investable real estate. With this in mind, we’re going to stick to some of the aforementioned top players in the global market.
The state of the market(s)
Australia: Australian homes have been a ‘sure thing’ in investment since the turn of the century, with sharp yearly price increases as the norm. We’re only now seeing a slowdown, with Sydney’s market down 4.5% compared to last year.
United Kingdom: Prices in the UK are stagnating following several years of growth, with reports showing a fall of £26.9bn since the turn of the year. Analysts blame Brexit for the recent decline in Britain’s property market. With negotiations with the EU still in the balance, speculators are sitting tight until the situation calms. Theresa May is currently claiming that 95% of the deal is done, but uncertainty remains.
United States: The US is still in recovery mode, with a huge shift from homeowners to renters between 2006-2014. House prices are seeing an upward trend and mortgages are stable, however homeownership is still down over 6% compared to pre-recession levels.
Who’s investing (and borrowing)?
Australia: Chinese investors continue to have an important presence in Australia, with some reports suggesting foreign investment represents over 10% of trade for newly built homes and 5% of resale. The Australian government has also been keen on encouraging local investment, offering strong incentives to first-time buyers. Banks also don’t seem to be worried about an upcoming downturn, with interest-only loans still very common; Lendi’s FAQ guide to Australian home loans highlights the availability of FHOG (First Home Owners Grant) and other loan options you won’t currently find in the United States.
United Kingdom: Young people and low-paid workers are suffering, with renting becoming the norm for millenials. And while London continues to be a popular draw for businesses as the focal point of the European financial scene, things may change following Brexit. Nevertheless, Britain is still popular with foreign investors, with Middle and Far Eastern buyers continuing to pump money into the UK economy.
United States: Young people are struggling to find a presence in the real estate market, with a third still living with their parents in 2105 (up 10% compared to 2005). Difficulty in obtaining credit, growing student loan debts, and unaffordable housing in the cities that have jobs (e.g. San Francisco) all form part of the complex picture. While home prices are finally clawing their way back up, the market is now largely limited to the wealthy and property investors.
What’s in store for 2019 and beyond?
Australia: The boom times may be over for now, with properties not “flying off the shelves” as in previous years. This is partly due to design, however, with Australian authorities curbing lending and increasing taxes for foreign investors to protect local buyers. While we expect that prices will not increase in the double digits we’ve been used to, Australia still offers investors a solid long-term investment opportunity.
United Kingdom: While the base interest rate is expected to rise, mortgage rates should remain low in 2019. The UK economy is still on shaky ground and with inflation creeping upwards faster than income (not to mention the coming Brexit), we don’t expect the situation to change in the coming years. We should also see landlords losing out to first-time buyers, with buy-to-let mortgages dwindling and tax breaks coming to a close. Speculators beware.
United States: We have already seen evidence of a slowdown in prices and we think this trend will continue. The shortage of homes in the lower end of the market will remain a problem, with construction unable to keep up with demand. The thought here is that real estate will continue to be a seller’s market in the United States in 2019.