TORONTO, Aug. 10 /CNW/ - The global housing recovery appears to have
cooled again after a strong first-quarter performance, according to the
latest Global Real Estate Trends report released today from Scotia
Economics. Based on available data for the second quarter, housing
demand and prices have softened alongside moderating global growth,
heightened financial market volatility and sluggish job creation.
"Global real estate markets entered 2010 with a renewed sense of
optimism, piggybacking on the broader economic recovery underway," said
Adrienne Warren, Senior Economist, Scotia Economics. "Housing demand and
pricing improved in the first quarter of the year in the majority of the
advanced nations we track, benefitting from ultra-low interest rates,
improved affordability, and in some cases, government purchase
Australia and Canada, with inflation-adjusted average home prices rising
at double-digit rates, led the pack, mirroring their relatively more
favourable employment and lending conditions. Sweden and Switzerland
were posting steady increases, while in the U.K. home prices moved back
into positive year-over-year territory for the first time in two years.
The U.S. and French property markets were reporting only marginal
There were a few exceptions to this generally improving trend, notably
Spain and Ireland. Home prices in both nations were still declining on a
year-over-year basis, weighed down by a large oversupply of housing and
high unemployment. Japan's property market too shows little sign of
emerging from its two-decade long slump.
"The recent slowdown has been most dramatic in Canada," Ms. Warren
noted. "Average home prices in Q2 were up just 6.8 per cent
year-over-year, compared with 16.6 per cent year-over-year in Q1. Sales,
while still at a high level, have trended steadily lower alongside
reduced affordability and exhausted pent-up demand.
"Meanwhile, increased listings are tilting overall market conditions
back in favour of buyers," continued Ms. Warren. "We expect demand to
remain at a lower ebb into next year, and prices on average to be
According to the report, the transition underway in global housing
markets from the overvaluation and overbuilding of the mid- to
late-2000s is expected to be slow and uneven. In some of the hardest-hit
markets facing ongoing deleveraging by households and governments, the
U.S., the U.K., Spain and Ireland included, Scotia Economics continues
to anticipate a multi-year period of adjustment. In higher growth
nations such as Canada and Australia, housing activity should prove much
more subdued than in recent years.
Canada's Resale Market Outperforms New Housing
Sellers of resale homes have consistently commanded greater price
increases from buyers over the past decade than have new home builders.
Between 2000 and the first half of 2010, the average cost of a new home
increased by just over 50 per cent. Over the same period, the average
price of a resale home more than doubled.
"Sales of new and resale homes are driven by the same underlying factors
- primarily interest rates and employment/income growth," said Ms.
Warren. "Traditionally, the demand and pricing for new homes mirror, but
with a lag, trends in the resale market. When resale housing selection
is limited, and/or prices are increasing sharply, buyers are more likely
to consider a new home purchase."
The report points to several factors that account for the outperformance
of the resale market, including a shortage of resale listings relative
to demand, a boom in renovation activity that has added value to the
existing stock of housing, and rising urban land values.
Based on national balance sheet data, the aggregate value of Canadians'
holdings of residential buildings (i.e. excluding land) has doubled over
the past decade. However, the value of the land on which these
structures stand has increased two-and-a-half fold. Land values now
account for close to 50 per cent of the estimated value of residential
properties, up from less than 40 per cent in 1990.
"The divergence in new and resale home prices is seen in most markets
across the country, but to varying degrees," concluded Ms. Warren. "The
biggest gap has opened up in British Columbia, where the lack of
developable land in its largest city is a major contributor to its
record high home prices. On the other hand, new home prices have largely
tracked resale prices in Alberta and Saskatchewan, where a massive
influx of population attracted to the region's booming economy, and the
inherent lag in adding sufficient new housing stock, fuelled
Scotia Economics provides clients with in-depth research into the
factors shaping the outlook for Canada and the global economy, including
macroeconomic developments, currency and capital market trends,
commodity and industry performance, as well as monetary, fiscal and
public policy issues.
SOURCE Scotiabank - Economic Reports
For further information: For further information:
Adrienne Warren, Scotia Economics, (416) 866-4315, firstname.lastname@example.org; Robyn Harper, Public Affairs, (416) 933-1093, email@example.com