Is There a Global Housing Crisis in the Making?

Commentary

It seems that there is a worldwide housing crisis at the beginning stages of development. But what about the United States? Rates continue to rise and there is a lot of risk.

Jan Hatzius, Chief Economist at Goldman Sachs, recently published research warning about the impending collapse of the U.S. Housing Market. According to him, “The continued reduction in affordability and waning tailwind of the pandemic suggest that home sales will fall further net. We forecast current home sales at 4. 25 million in the fourth quarter (-12 percent versus July). This lowers our residential fixed investment growth forecast to -15 percent in 2022 and zero percent in 2023 (both fourth quarter/fourth quarter), versus -13 percent and +1.5 percent previously.”

Hatzius continued: “We expect home price growth to stall completely, averaging zero percent in 2023. Although it is possible for certain regions to see a decline in home prices, we do not expect a large drop .”

.

Overvalued Markets?

Coastal areas (e.g. Miami, New York City and Los Angeles) were always at a premium but other markets have begun to slow down. According to Moody’s credit rating agency, Austin, Texas, Boise (Idaho), Charlotte (North Carolina) and Charlotte (North Carolina) were the most overvalued regions in America. For that matter, add Atlanta, Nashville and all of Florida.

However, a deeper look by Moody’s revealed that “183 of the nation’s 413 largest regional housing markets are overvalued by more than 25 percent.”

A rapid housing slump could lead to a severe decline in the market for housing. Moody’s estimated prices “could plummet by as much as 20 percent.”

If a recession is avoided, prices in the overvalued markets will still likely fall 10 percent.

Even the temporary housing bubble in California’s cities of San Diego and Los Angeles is eroding. The Los Angeles Times forecast this summer that Southern California’s home prices would remain stable if interest rates were kept below 6 percent.

At the moment, a 30-year fixed mortgage is at 5. 95 percent.

Are we in for a repeat of 2008? But that may change depending on consumer sentiment and policy. The Federal Reserve must be cautious about raising rates.

We don’t want to have a credit crunch when we already have a liquidity crisis in the housing market.

Big Trouble in China

In China, however, things are looking worse and some fear that China’s woes in property could spread to the rest of the world.

On Aug. 28, Martin Farrer, from The Guardian, in an article titled, “Point of no return: crunch time as China tries to fend off property crash,” made a number of startling points. He stated: “The Chinese housing market has driven growth for the past two decades and now represents the biggest asset class in the world, with a notional value of between $55 trillion (PS47 trillion) and $60 trillion, which is bigger than the total capitalization of the U.S. stock market.”

Furthermore, John Powers, from Al Jazerra, reported: “By some estimates, real estate accounts for 30 percent of GDP–about twice the equivalent share in the United States. Although some experts believe that the market is at its bottom, there are still problems for the sector. In July, S&P Global Ratings estimated that property prices would decline 30 percent this year–a worse decline than during the 2008 financial crisis.”

The smart money knows this: BlackRock and HSBC have reduced exposure to China property and there is no credit available to developers in China. A prolonged slowdown could lead to a decline in the performance of other interconnected countries. There is also talk of China’s real estate industry eventually slowing down and mimicking Japan’s 10-year long “lost decade” that occurred after Japan’s unfathomable asset price bubble between the years 1986 and 1991.

During that time, the cash value of Japan’s total real estate was four times that of the United States; the Tokyo ward Chiyoda-ku was more valuable than all of Canada, and Tokyo’s 280-acre royal palace was considered more valuable than the entire state of California.

We might not be able to handle the American property pain, but we are ready for an international real estate headache.

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.