The outlook for house prices around the world remains mixed but generally weak, a leading economic research firm says.
Prices in Australia, meanwhile, are set to remain unchanged over the next 12 months.
In its latest Global Housing Outlook, economic research firm Barclays Economic Research says current global housing markets show diverse trends.
While prices are rising in Germany and Austria, Barclays says, they remain stagnant in the US, UK and Australia and are weakening in China and the Netherlands.
Looking ahead, Barclays predicts that these divergences are likely to continue. In both the US and Germany, a combination of low price-to-income ratios and low interest rates is leading to healthy levels of affordability, which are expected to translate to respectable house price gains in coming years.
In the rest of the Euro area, however, Barclays expects prices to continue to decline, with sharp falls in markets such as Ireland and Spain representing ‘ongoing corrections’ which appear ‘some way from being over.’
“What emerges [in the global house price outlook] is a decidedly mixed, though generally weak, outlook,” Barclays says in its report. “It becomes increasingly clear, as we move towards the sixth year of the financial crisis, that for countries which experienced a combination of sharp increases in real house prices during the period 1995-2008, followed by a substantial excess of supply, house prices have been under significant downward pressure and in some cases (notably Ireland and Spain) have not yet reached a final equilibrium.”
For Australia, Barclays says, the most likely scenario is that house prices will remain flat during 2012-13 with a recovery expected thereafter after as international economic conditions and domestic growth prospects improve.
While the global economy remains a risk to Australian commodity prices and economic prospects, and therefore to house prices as well, as does any re-tightening of migration restrictions by the federal government, Barclays says a combination of low unemployment, rising personal savings and strong domestic financial institutions continue to underpin the housing market and imply that a dramatic decline in prices is unlikely.
Barclays’ latest prediction follows statements from another forecasting firm, BIS Shrapnel, that fundamentals throughout Australia are beginning to favour an improvement in residential market conditions.
Regional Prospect Summary
Barclay’s summary of prospects for house prices in major markets over coming years is as follows:
- In the United States, Barclays expects a modest increase in national home prices as single family starts trend higher and an improving economy and better affordability offset the large overhang of shadow inventory.
- While house prices for the Euro area will fall overall, there will be marked differences between countries, with buoyancy in Austria and some recovery in Germany but falls of eight, nine and 14 per cent expected for Spain, Greece and Ireland respectively.
- Fundamentals in the United Kingdom look reasonably strong, with Barclays expecting a slight decline in prices this year but expecting prices to grow by an average of 4.1 per cent over the next five years, with the southeast portion of the country the strongest performing area.
- In Japan, demographic changes revolving around a downturn in the main house buying segment of the population and net migration into Tokyo may mean that current strong levels of housing investment do not translate into house price gains.
- In China, while recent relaxations of house price reduction policies and other steps to support growth mean that downside risks are more limited than now than in the recent past, the question of whether or not prices are set to fall further is difficult to answer at this time.
- In Australia, Barclays expects net migration flows and macroeconomic trends to result in no change to house prices in 2012, but a recovery thereafter after as economic conditions pick up.