Sunday Review Business

Last year, Auckland’s largest real estate company couldn’t sell properties quickly enough to meet demand in New Zealand’s biggest city.

These houses were “flying out the door,” said Grant Sykes, a manager at real estate agency Barfoot & Thompson. “There were chin-dropping moments when agents stand around the room and are gobsmacked at the prices being achieved,” He spoke to The Sunday Review Business.

For 1 million New Zealand, this property was for sale. Dollars (610,000) Above the Asking price In an auction that lasted just eight minutes. (Most New Zealand homes are sold at auction.

It was May 2021, when sales were at an all-time high. Thousands of bidders came forward, driving prices higher. Since then, Barfoot & Thompson’s clearance rate at auction has plummeted, according to Sykes, prolonging sales times and sending prices lower.

The time it According to the, the average time it takes to sell a New Zealand property has increased by about 10 days since October 2021. Real Estate Institute of New Zealand. Sales fell nearly 35%, and the median house The prices have fallen 7.5% in the past year.

New Zealand is The sharp end of the global housing market squeeze That has serious implications for the world’s economy.

The pandemic boomThe price was sent by. In the stratosphere is You are running out of steam house Prices are now at their lowest falling From Canada to China, the scene is set for the largest possible housing market slowdown Since the global financial crisis.

Rising This dramatic change is due to the dramatic rise in interest rates. The central banks are a warpath against inflation The rates have increased to levels that were not seen in a decade. This has had ripple effects on the cost and interest of borrowing.

US mortgage rates topped 7% Last month, for the first time since 2002. This is an increase of just over 3% from a year ago. pulling back Inflation eased slightly in November, which led to a slight decrease in November. The mortgage rates in the United Kingdom and the European Union have more than doubled over the past year to chase potential buyers off the market.

“Overall, this is the most worrying housing market outlook since 2007-2008, with markets poised between the prospect of modest declines and much steeper ones of 15%-20%,” Adam Slater is a leading economist at Oxford Economics.

Unemployment is a key factor in determining how low prices can go. Unemployment. A Sharp increase in unemployment could Foreclosures and forced sales can result. “where steep discounts are common,” According to Slater.

However, even if the prices corrected is Moderate, but not a housing market slowdown could This can lead to severe economic consequences, as housing transactions stimulate activity in other parts of the economy.

“In an ideal world, you’ll get a bit of froth blown off the top [of house prices] and everything is fine. It isn’t impossible, but it’s more likely that housing downturns come with nastier consequences,” Slater spoke to The Sunday Review Business.

More than half of the 18 advanced economies Oxford Economics tracks have house prices falling. Prices dropped by about 7% between February and August in the United Kingdom, Germany Sweden, Australia, Canada and Australia.

“Data lags probably mean that most markets are now seeing falling prices,” Slater. “We’re in the early period in quite a clear downturn now and the only real question is how steep and how long it’s going to be.”

House prices in the United States — which rose during the pandemic by the most since the 1970s — are falling too. Goldman Sachs economists anticipate a decrease of approximately 5%-10% over the peak in June 2024 to March 2024.

In a “pessimistic” scenario, US prices could plunge as much Enrique Martinez Garcia, Dallas Fed economist wrote that the rate was as high as 20%. blog post recently.

According to official statistics, prices for new homes in China dropped at an unprecedented pace in October, indicating a deeperening property market. slump This has been a problem in the country for several months. is This is a significant economic burden on the country. According to China Index Academy, a research company, home sales fell by 43% in this year.

Other sales are also falling as banks adopt a more cautious approach when lending, and potential homebuyers put off buying due to the uncertainty of the market. much A worsening outlook and higher borrowing costs

House sales in Britain were 32% below the previous year’s level in September, according to official figures. A Closely monitored surveys showed that October saw a sixth consecutive month of fewer buyer inquiries than in 2008. This was the lowest level since 2008 (excluding the first six months of 2020) when the market was shut down by the pandemic.

According to the National Association of Realtors, October saw a drop in sales of existing homes by 28% year-overyear. This was the ninth consecutive month of decline.

UBS tracks 25 major cities across the globe and has found that average mortgage rates have almost doubled since last year. house Purchases much Less expensive

“A skilled service sector worker can afford roughly one-third less housing space than before the pandemic,” According to UBS Global Real Estate Bubble Index.

An estate agent's 'for sale' board is pictured on a house at the end of a row of terraced homes in northern England on November 2, 2022.

Not only are new buyers being discouraged, but existing homeowners have been shocked by the sudden rise in rates. They were used to living for more than a decade with very low borrowing costs.

Since 2009, when rates were almost zero, there have been more than 4,000,000 mortgages issued in Britain to first-time buyers. “There’s a lot of people out there who don’t appreciate what it’s like when their monthly outgoings rise,” Tom Bill, UK Residential Research Head at Knight Frank, said the following:

The shock will be felt immediately in countries where there is a greater share of variable rate mortgages such as Australia and Sweden. could Increase the chance of forced sales, which can drive down prices faster.

Even in countries like New Zealand or the United Kingdom where mortgages are commonly fixed, the average maturity for these mortgages is not high. is quite short.

“This means much more debt will be subject to (often significantly) higher rates over the next year or so than might first appear to be the case,” Slater wrote a report last week.

The housing market slowdown was caused by interest rates, but the future direction of the economy will depend on how low the prices actually fall.

Modelling the past house price Oxford Economics shows that there are many ways to get work. is The severity of a downturn is determined by the extent to which there has been an increase in joblessness.

“History shows that if labor markets can remain strong, then the chances of a more benign correction are higher,” According to Innes McFee (chief global economist at Oxford Economics),

Many advanced economies have seen their employment levels rebound since the pandemic. There are early signs that labor markets may be cooling, as weak economic growth affects demand for workers.

The International Labour Organization estimates that after a strong recovery at the start of the year, the hours worked fell 1.5% to pre-pandemic levels by the end of the third quarter. This amounts to a deficit in full-time employment of 40 million, which is equivalent to an estimated deficit of 40,000,000 jobs.

“The outlook for global labour markets has worsened in recent months and on current trends job vacancies will decline and global employment growth will deteriorate significantly in the final quarter of 2022,” The ILO reported in October.

The unemployment The rate in the United States increased to 3.7% in October. The United Kingdom has seen its job vacancies drop to their lowest point in over a year. The UK Office for Budget Responsibility anticipates that there will be a drop in job vacancies. unemployment to rise by 505,000 to a peak of 1.7 million — an unemployment rate of 4.9% -— in the third quarter of 2024.

“A decisive increase in unemployment is a very big danger for housing markets,” Slater of Oxford Economics.

A pedestrian passes unfinished apartment buildings at the West Bund Park residential project in Shanghai, China, on Jan. 14, 2022.

Market watchers do not expect a repeat of 2008’s housing market crash. The financial condition of households and banks is better, while housing supply in certain countries is still limited.

Even a slight fall in the number of people affected by it is still significant. house Prices will affect confidence and cause homeowners to reduce their spending.

A slowdown in activity will also deal a blow to many other parts of the economy because of the housing market’s links to builders, lawyers, banks, moving companies and furniture stores, to name a few.

China’s property market accounts for about 28-30% of GDP because of these linkages. In the United States, housing’s broader contribution to GDP generally averages 15-18%, according to the National Association of Home Builders.

In a worst-case scenario — one in which house Prices fall sharper than expected and price Rectifications are met by a slump in residential investment and tighter lending by banks — Oxford Economics predicts that the world’s GDP will grow by 0.3% rather than 1.5% in 2023. it Currently, expects.

“An additional negative factor, compared to the [global financial crisis], is that the Chinese housing market is also in a downturn,” According to Slater. “So rather than offsetting the impact on world output of a global housing downturn, as was the case after the GFC, the Chinese housing sector is contributing to the slump.”

— Laura He contributed to this report.