This report provides a summary of global real estate market trends in the second quarter of 2013. The key points are:
1) Real home prices strengthened year-over-year in most countries surveyed, led by gains in the US and UK as monetary policy easing supports demand.
2) Canadian housing activity remains buoyant due to low interest rates, but fundamentals are becoming less favorable as job growth slows. Condo overbuilding is a concern in major cities like Toronto.
3) Several European markets like the UK are showing signs of recovery, while conditions remain weak in southern Europe with high unemployment in countries like Spain and Ireland.
4) Asian property markets are mixed, with strong growth continuing
1. Adrienne Warren (416) 866-4315
adrienne.warren@scotiabank.com
Global Economics
GlobalRealEstateTrends
Global Real Estate Report is available on: www.scotiabank.com, Bloomberg at SCOT and Reuters at SM1C
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Aggressive monetary policy easing, which has anchored short-term interest rates in many countries near
historic lows, alongside pent-up demand are helping to reinvigorate global property markets. Notwithstanding
the sluggish pace of economic activity and elevated financial market volatility, inflation-adjusted home prices
strengthened year-over-year in the second quarter in the majority of countries in our survey (chart 1). The
turnaround is most notable in a number of advanced nations such as the United States and the United
Kingdom, but prices are re-accelerating again in some emerging markets as well, including China.
The United States maintains its position near the top of our international ranking, with inflation-adjusted
home prices rising 8% y/y in Q2. Demand is being bolstered by moderate job growth and near record housing
affordability, while low inventories and fewer distressed sales are supporting prices. We expect rising
mortgage rates will moderate, but not derail the recovery, which is still in its early stages from a cyclical
standpoint. Household finances have improved, consumer confidence is rising and lending conditions are
slowly easing. There is also considerable pent-up demand for housing following the multi-year downturn.
Canadian housing activity remains buoyant, though the underlying fundamentals for continued gains are
becoming less favourable. Average inflation-adjusted home prices increased 2½% y/y in Q2 alongside
strengthening sales volumes. Low borrowing costs and balanced
market conditions continue to attract buyers, though slowing job
growth and the recent uptick in fixed mortgage rates will likely cool
activity later in the year and into 2014. Affordability also is
challenged in some of Canada’s largest urban centres, primarily for
single-family homes.
A number of European property markets are showing early signs of
revival, mirroring the nascent pickup in economic activity and
consumer confidence. The U.K. housing recovery is becoming more
broad based, supported by ‘Help to Buy’ stimulus measures
introduced in the 2013 budget. Real prices moved back above year-
ago levels in Q2 for the first time in 2½ years. Sweden and
Switzerland reported steady real price growth in the second quarter.
Conditions are weaker in the periphery. Spain’s property market
remains in a deep slump. While the rate of price decline is slowing,
there is limited prospect of a near-term turnaround with the nation’s
jobless rate stuck at over 25%. Irish property prices appear to be
Modest Firming In Global Housing Markets Through Mid-Year
September 11, 2013
Focus On Canada’s
Housing Market p. 2 >
-20 -10 0 10 20
Spain
Italy*
France*
Russia
South Korea
Japan*
India
Ireland
Mexico
U.K.
Canada
Australia
Brazil
Sweden
Germany***
Thailand
Chile
Switzerland
Indonesia
U.S.
Colombia*
China
Peru**
*2013Q1 **2012Q4 ***2012. Source: Scotiabank
Economics
2013Q2,
y/y % chg
Chart 1: Real House PricesChart 1: Real House Prices
*2013Q1 **2012Q4 ***2012
Source: Scotiabank Economics
2. 2
Global Economics
Global Real Estate Trends
September 11, 2013
bottoming as demand slowly picks up. However, record mortgage arrears
topping 12% of outstanding loans are a significant hurdle to a sustainable
housing recovery.
Asian property markets are for the most part holding up in the face of slowing
regional growth. Despite official policy efforts in recent years to rein in credit
demand, real house prices accelerated in the vast majority of major cities in
China in Q2. Australian, Indonesian and Thai property markets also gained
momentum in the April to June period, though conditions remain weak in
India and South Korea, with prices contracting modestly last quarter.
Latin American property markets are mixed, with strong price growth in
Chile, Peru and Colombia underpinned by relatively solid domestic demand
and labour markets. Real house prices in Mexico are flat, with modest
nominal price appreciation eroded by persistent inflation. Meanwhile, a
weakening economy and high interest rates have led to a sharp cooling in
Brazil’s previously red-hot housing market.
Focus on Canada’s Housing Market
Canadian housing activity remains quite buoyant, supported by low borrowing
costs and reasonably healthy employment conditions. Home resales, after
declining through the latter half of 2012, recovered over the spring and
summer. The volatile pattern of sales may reflect in part uncertainty
surrounding repeated moves by Ottawa to tighten mortgage rules and lending
guidelines in order to slow the housing market’s momentum. Year-to-date,
national home sales are trending slightly below last year’s levels, and are in
line with the average pace of the past decade (chart 2).
Home prices also are proving resilient. The MLS Home Price Index (HPI),
which takes into account changes in the mix of sales by housing type and
location, shows national prices tracking around 2-3% year-over-year. This
modest rate of house price appreciation is consistent with balanced market
conditions and long-term house price inflation.
Regionally, Alberta continues to show the strongest overall conditions, as
strong population inflows and full-time job growth fuel growing housing
demand. Activity in British Columbia remains on the softer side despite some
recovery in sales and pricing in recent months. In most other provinces, sales
volumes are fairly ‘typical’ and market conditions balanced.
Buyers are taking advantage of still attractive borrowing costs,
notwithstanding the recent upward drift in fixed mortgage rates. Indeed, the
prospect of rate increases may have drawn in potential homeowners from the
sidelines. Demand also is supported by immigration and population growth,
and mirrors strengthening consumer confidence.
New home construction and building permit demand have also firmed in
recent months. However, the 183,000 annualized housing units initiated this
year is well below last year’s 215,000 units, and in line with underlying
0
2
4
6
8
10
12
14
16
00 02 04 06 08 10 12
Chart 4: Canadian Household
Credit
Source: Bank of Canada, Scotiabank Economics
y/y % change
Residential
Mortgages
Consumer Credit
200
300
400
500
600
00 02 04 06 08 10 12
Chart 2: Canadian Home
Resales
Source: CREA, Scotiabank Economics
000s, annualized
10-year average
0
50
100
150
200
250
300
00 02 04 06 08 10 12
Multi-unit
Single-family
Chart 3: Canadian Housing
Starts
Source: CMHC, Scotiabank Economics
000s of units, annualized
Chart 3: Canadian Housing Starts
Chart 4: Canadian Household Credit
Chart 2: Canadian Home Resales
3. 3
Global Economics
Global Real Estate Trends
September 11, 2013
0
2
4
6
8
10
12
14
16
90 95 00 05 10
Multis
Singles & Semis
units per 10,000 population 25+
household formation requirements (chart 3). The reduction in starts has been
focused on multi-unit projects, primarily in Toronto and Montreal, as builders
react to reduced new home demand and rising unsold inventory.
Underlying fundamentals are less conducive to a further ramping up in
housing activity. Any pent-up demand from last year’s slowdown has been
satisfied with sales now back in line with historical averages. Moderating job
growth — employment gains have averaged 13,000 per month this year, half
the average gain in 2012 — also should temper demand.
Canadian households appear increasingly reluctant to take on additional debt,
heading to repeated warnings from policymakers. Consumer credit and
mortgage growth is advancing at its slowest pace in over a decade (chart 4).
The household savings rate is trending up.
Housing affordability at a national level is still within historical norms, with
high home prices offset by ultra-low borrowing costs (chart 5). However,
affordability is expected to become a bigger challenge for buyers over the
coming year with interest rates now drifting up. The deterioration in
affordability should be manageable under a gradual upward trajectory for
interest rates, moderate income growth and modest to flat home price
increases. A sharp spike in interest rates, a decline in household incomes or a
re-acceleration in home price appreciation pose a greater risk. National
affordability measures mask more strained conditions in several major centres,
primarily for single-family homes in Toronto and Vancouver.
Homeowners have a number of options in the face of rising borrowing costs.
Variable rate mortgages are expected to remain near historic lows in 2014, and
move up only slowly thereafter as the Bank of Canada gradually normalizes
monetary policy. Many homebuyers are insulating themselves to a higher rate
environment by locking in at historically low rates. For homeowners with a
mortgage coming up for renewal, most face a lower rate today relative to the
discounted rate available 1, 3 and 5 years ago.
The combination of moderately higher interest rates and slowing job growth
will likely dampen home sales later this year and into 2014. Meanwhile,
increased supply should limit price gains. However, the risk of a large price
correction nationally remains low barring a major adverse shock such as a
sharp rise in unemployment. Sellers have been responsive to shifts in supply
conditions, mortgage quality is solid, and arrears rates are low and edging
lower (chart 6).
Slowing home sales should in turn lead to a reduction in new home
construction. We expect starts will fall to about 170,000 units in 2014, below
demographic replacement demand. A period of below-average construction
will help absorb excess housing stock. Unsold inventory has been creeping up
in recent years with starts exceeding household formation trends, but is not
particularly high from a historical perspective (chart 7).
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
90 95 00 05 10
Chart 6: Canadian Residential
Mortgage Arrears
Source: CBA, Scotiabank Economics
% of mortgages 30 days
or more past due
0.20
0.30
0.40
0.50
0.60
0.70
90 95 00 05 10
Chart 5: Canadian Housing
Affordability
Source: Scotiabank Economics
Mortgage payment /
PDI per worker
Long-term average
National Average
Chart 5: Canadian Housing
Affordability
Chart 6: Canadian Residential
Mortgage Arrears
Chart 7: Completed & Unsold
Housing Inventory
Source: CMHC, Statistics Canada,
Scotiabank Economics
4. 4
Global Economics
Global Real Estate Trends
September 11, 2013
Canada’s Major Condo Markets Are Rebalancing
Potential overbuilding of condominiums in a number of major urban centres
remains a concern, especially in light of recent evidence that demand is
waning. In Toronto, where reasonably good data on new home sales are
available, purchases of both new low-rise and high-rise homes have fallen
sharply over the past year. Reduced expected returns have dampened
investor demand for new condos, while high prices and supply constraints
have undercut low-rise sales. Sales of resale condominiums are holding up
better, evidence that demand by owner occupiers (which dominate resales)
remains healthy.
Homebuilders are responding to the shift in market conditions. Toronto
housing starts dropped from a record 48,000 units last year to a 33,000
annual rate over the first eight months of 2013 (chart 8). Based on annual
household formation of close to 38,000 from 2006-2011, starts have moved
back below underlying housing demand.
The slowdown primarily reflects fewer high-rise projects breaking ground.
Toronto apartment starts have fallen almost in half this year, from 30,000
units in 2012 to an annual rate of 16,000 from January through July. Given
the weakening trend in new home sales, construction will likely move even
lower over the coming year. Toronto apartment starts fell to an annual rate of
13,000 in 2009-2010 following the recession slump in sales.
Despite the slowdown in starts, a record number of completed condominium
units will come onto the Toronto market over the next two years. Given
strong condominium rental demand — lease transactions reached a record
high in Q2 — low vacancy rates and rising rents, we expect a large number
of investor-owned units can be absorbed by the rental market. Even so, new
supply will likely outstrip demand, putting some downward pressure on new
and resale condominium prices.
There are also potential imbalances emerging in the Montreal and Vancouver
condominium markets. Here too builders are slowing the pace of new
construction in order to reduce inventories — apartment starts this year are
down roughly 30% and 10%, respectively (charts 9 and 10). Data on new
condominium sales for these markets are limited, though resale reports point
to somewhat softer conditions.
Over the medium term, a number of factors will continue to support
homeownership condominium demand. These include the high cost
of single-family homes in Canada’s largest urban centres, lifestyle
considerations (e.g. the desire for shorter commutes and lower maintenance)
and demographic shifts (e.g. immigration, an aging population and the rise in
one-person households). From a supply perspective, development restrictions
and land constraints are expected to continue to promote urban
intensification. 0
5
10
15
20
00 02 04 06 08 10 12
Single-family
Multi-unit
Chart 10: Vancouver Housing
Starts
000s of units, annualized
Source: CMHC, Scotiabank Economics
0
5
10
15
20
25
00 02 04 06 08 10 12
Single-family
Multi-unit
Chart 9: Montreal Housing
Starts
000s of units, annualized
Source: CMHC, Scotiabank Economics
0
5
10
15
20
25
30
35
40
00 02 04 06 08 10 12
Single-family
Multi-unit
Chart 8: Toronto Housing
Starts
000s of units, annualized
Source: CMHC, Scotiabank Economics
Chart 8: Toronto Housing Starts
Chart 9: Montreal Housing Starts
Chart 10: Vancouver Housing Starts
11. 11
Global Economics
Global Real Estate Trends
September 11, 2013
International Residential Markets
Source of nominal house price data:
Australia: Price index of established houses, weighted average of 8 capital cities. Australian Bureau of Statistics.
Canada: National average price of existing home sales. Canadian Real Estate Association (CREA).
France: Price index of second-hand dwellings. National Institute of Statistics and Economic Studies (INSEE).
Germany: Resale house price index. Bundesbank unpublished. Bank for International Settlements (BIS).
Ireland: Average price of second-hand houses (before 2006). Irish Department of the Environment, Heritage and Local Government.
Residential Property Price Index, all dwellings (from 2006). Central Statistics Office.
Italy: Resale house price index, average of 13 urban areas (before 2011). Bank of Italy.
House Price Index, new and existing homes, all dwellings (from 2011). Eurostat/Istat.
Japan: Residential urban land price index. Japan Real Estate Institute.
Spain: Average price of second-hand houses. Bank of Spain.
Sweden: Real Estate Price Index, buildings for permanent living. Statistics Sweden.
Switzerland: Price index for single-family homes. Swiss National Bank.
United Kingdom: M ix-adjusted house price index, all dwellings. U.K. Office for National Statistics.
United States: National average price of existing single-family home sales. National Association of Realtors.
Russia: Average price per square metre, existing homes, all dwellings, urban areas. Federal State Statistics Office.
Brazil: Residiential real estate collateral value index, all dwellings, urban areas. Central Bank of Brazil.
Chile: New House Price Index (IRPV), Greater Santiago, all dwellings. Chilean Chamber of Construction.
Colombia: New House Price Index (IPVN), all dwellings, 23 municipalities. National Administrative Department of Statistics (DANE).
M exico: Housing Price Index (Indice SHF), new and existing homes, all dwellings. Sociedad Hipotecaria Federal.
Peru: Price per square meter of apartments, Lima. Central Reserve Bank of Peru (BCRP).
China: Sale price of second-hand residential buildings, Beijing. National Bureau of Statistics of China.
India: Housing Price Index (NHB Residex), new and used homes, all dwellings, 15 cities. National Housing Bank.
Indonesia: Residential Property Price Index, new homes, all dwellings, 14 city composite. Central Bank of Indonesia.
South Korea: House Price Index, new and existing homes, all dwellings. Bank of Korea.
Thailand: Housing Price Index, single-detached house (incl. land), Bangkok & vicinity, Government Housing Bank loans (before 2009). Bank of Thailand.
Housing Price Index, single-detached house (incl. land), Bangkok & vicinity, Commercial Bank loans (from 2009). Bank of Thailand.
International House Prices
(Inflation-adjusted*, y/y % change)
2004 2005 2006 2007 2008 2009 2010 2011 2012 12Q3 12Q4 13Q1 13Q2
Australia 4.2 -1.2 4.2 9.0 0.1 1.7 9.1 -5.9 -2.5 -2.1 0.3 0.8 2.7
Canada 7.4 7.7 9.2 8.6 -3.1 4.7 4.1 4.1 -1.2 -1.5 -0.7 0.2 2.5
France 12.8 13.5 10.1 5.0 -2.3 -7.2 3.4 3.6 -2.6 -3.9 -3.7 -2.6
Germany -2.8 -3.9 -2.8 -1.2 -1.7 -0.2 0.9 2.5 3.6 .. .. .. ..
Ireland 8.9 10.0 11.8 5.6 -9.0 -16.6 -11.6 -14.3 -14.7 -14.0 -7.9 -4.0 -0.9
Italy 3.8 5.5 3.6 2.9 -0.9 -1.3 -1.5 -2.2 -5.9 -7.1 -7.8 -7.8
Japan -6.2 -4.8 -3.6 -1.1 -2.6 -2.4 -3.1 -2.9 -2.7 -2.2 .. -1.6 ..
Spain 15.3 11.2 6.5 2.6 -3.9 -7.3 -5.7 -9.2 -11.3 -12.4 -13.6 -11.0 -10.0
Sweden 9.0 8.6 10.8 8.2 -0.2 1.9 6.6 -1.9 -2.3 -1.9 2.2 2.7 3.3
Switzerland 1.6 -0.1 1.4 1.3 0.3 5.5 4.0 3.9 4.4 4.1 4.0 4.0 5.9
United Kingdom 10.5 3.4 4.0 8.6 -4.6 -10.0 4.0 -5.4 -1.2 -0.6 -0.3 -0.5 0.2
United States 6.3 6.1 -2.0 -5.0 -12.7 -9.3 -0.2 -6.4 3.1 5.0 7.1 7.6 8.0
Russia 17.1 10.9 38.4 35.3 10.3 -12.4 1.4 -29.3 9.9 10.3 10.3 -0.4 -2.2
Brazil 7.6 3.6 8.7 14.1 17.1 19.1 19.5 12.9 6.4 5.3 4.2 3.5 2.9
Chile .. -1.5 -5.2 -2.1 -2.1 0.4 1.9 5.3 2.7 2.3 4.3 6.6 5.5
Colombia 6.7 4.1 3.3 10.8 6.7 5.5 5.3 6.2 7.6 7.9 8.6 9.8
Mexico .. .. 3.0 3.6 -0.5 0.1 -0.3 0.8 0.7 -0.8 -1.2 -0.8 -0.5
Peru 7.0 -6.1 -4.1 2.4 22.1 14.1 9.4 13.7 18.1 16.8 15.3
China .. .. .. .. .. -1.0 1.7 -4.5 -4.8 -4.1 -2.0 3.8 10.2
India .. .. .. .. -0.7 -5.9 3.3 6.2 -2.2 -3.5 0.0 2.7 -1.6
Indonesia -2.1 -6.5 -7.8 -4.1 -7.3 -2.6 -2.3 -0.7 0.4 -0.2 2.4 5.7 6.5
South Korea -2.4 -2.0 3.9 6.6 -0.7 -2.6 -0.5 1.2 0.7 0.3 -1.4 -1.9 -1.9
Thailand 2.6 3.5 -0.9 -1.1 -6.6 5.2 -2.3 -0.7 -1.8 0.1 -2.0 1.5 3.8
* Nominal house prices deflated by national consumer price indices.