The risk of the "bubble" in the global property market is still controllable for the time being

Source: Economic Reference Newspaper

Under the impact of the new crown pneumonia epidemic, the global property market prices have soared, which has recently triggered industry concerns about the growth of asset bubbles. However, a closer look at the reasons and looking forward to policy trends, this round of property market rally is unlikely to brew into a big trouble, and the future market volatility may be limited.

From the perspective of market supply and demand structure, some countries have ushered in a special time window of short supply and demand, and "just demand" has not only been amplified under the influence of the new crown pneumonia epidemic, but also the ultra-low credit cost has become an external driver for consumers to purchase plans in advance.

In its analysis of the U.S. property market, Fortune magazine said that in the last five years, the vast majority of millennials (born between 1989 and 1993) will enter the age of 30, and most people will start buying houses at this age. But after a decade of housing crisis, builders became wary in the decade after 2010, and the U.S. market was not prepared for a massive increase in millennial homebuyers. According to Fannie Mae, this has led to a gap of about 4 million homes in the United States.

The unprecedented scale of this round of global property market rally is inseparable from ultra-low interest rates, monetary easing and large-scale government stimulus measures in many countries. Of the 56 global markets in which housing statistics are published to date, real house prices (i.e., inflation-adjusted prices) have risen in 43 markets. The rise in house prices in these countries is not driven by external hot money, and the internal factors are more motivated than the external factors.

In addition, the impact of the COVID-19 pandemic on the housing market continues, such as the low mortgage rates caused by the recession and the home-based work trend, which have not disappeared and made the real estate market continue to be hot. Although housing inventories have increased again, they are still well below pre-pandemic levels and cannot meet current demand. This means that house prices will continue to rise.

As for the severity of the market bubble, many experts believe it is too early to draw conclusions. Some experts believe that the current is in a period of excessive housing prices but limited bubbles, there has not been excessive borrowing, and the risk of a real estate bubble is not high, which is different from the global financial crisis triggered by the bankruptcy of Lehman Brothers Bank in the United States in 2018. At that time, the borrowing rate was 10%, and there is no sharp increase in personal borrowing.

As global supply chains come under pressure, construction inventories shrink and costs of materials such as steel, wood and copper rise rapidly, amplifying the imbalance between supply and demand in residential inventories.

In the face of persistently high housing prices, many governments are taking precautions to prevent bubbles from inflating or bursting.

In Canada, where house prices have become one of the topics of contention among political parties, Prime Minister Trudeau has promised to restrict overseas buyers from entering the market. In South Korea, the hike tour has already begun. On August 26, the Bank of Korea raised its benchmark interest rate by 0.25% to 0.75%, the first rate hike in three years, mainly due to rising consumer demand, overheated real estate markets and soaring household debt. The country's monetary policy focus has shifted from supporting the economy to containing debt-driven asset bubbles.

In addition, the upward trend of housing demand is expected to be suspended or stagnant, which will inhibit the continued strong rise in house prices to a certain extent.

Global property consultancy Knight Frank's semi-annual Global House Prices report shows that in the year to June 2021, despite strong price growth, demand in some markets has begun to show signs of weakness. Mortgage applications have fallen in the U.S., and the percentage of households who think it's a good time to buy reached a decade low in June. Data released by the U.S. Federal Housing Finance Agency (FHFA) on the 26th showed that the U.S. housing price index rose 1% month-on-month in August, lower than the market expectation of 1.3% and 1.4% in July. The emergence of more and more wait-and-see sentiment has helped the market return to rationality.