Covid-19 has pushed the global economy into the worst downturn since the Great Depression, says The Economist. During the 2008 crisis, real house prices fell by 10%, and similar pain was expected this time. Yet house prices in developed countries rose by 5% in the second quarter. In Germany, they were up by an annual 11% in August.
There are two main causes. Firstly, massive monetary stimulus from central banks has kept borrowing costs low. At the beginning of the year a 30-year fixed-rate mortgage in America carried a 3.7% annual interest rate. Today the rate is 2.9%.
Secondly, governments have stepped in with massive fiscal support. Thanks to furlough schemes and other measures, household disposable income in the G7 was “about $100bn higher” than “before the pandemic” in the second quarter. Elsewhere, such as in Spain and Japan, governments have suspended mortgage repayments and eased repayment terms respectively.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
The boom is also being driven by a shortage of homes, says Nicole Friedman in The Wall Street Journal. In the US, the number of single-family homes for sale in July hit its lowest level for the month since records began in 1982. New home construction in the country has never regained its mid-2000s highs, and that structural problem is being aggravated by homeowners reluctant to move, owing to economic anxiety and fear of being infected with the virus by visiting buyers.
The most overpriced markets
Hong Kong remains the world’s most unaffordable major city. The latest UBS Global Real Estate Bubble Index, which monitors rent-to-income levels and “excessive lending”, reports that it would take 20 years for a skilled service worker in the city to save enough money to acquire a 650-square-foot apartment. The equivalent figure for London is about 15 years.
The average cost of a residential property in Hong Kong is a “staggering $1.23m”, notes Jason Hung in The Diplomat. Yet the city is becoming slightly more affordable as foreign investors pull back in response to the new national security law. Home rents fell by an annual 9.2% in August and commercial property has slipped by 30% over the past 12 months.
The UBS index shows that many European cities are overvalued, writes Diana Olick for CNBC. Munich and Frankfurt top the bubble list, while Paris and Amsterdam also look frothy. Beyond Europe, Toronto and Hong Kong are at risk of a real-estate bubble. London, Tokyo and New York are overvalued but not in bubble territory, while Chicago looks undervalued. Rents are falling in most cities, says Mark Haefele of UBS Global Wealth Management, so a “correction phase” for property prices in the world’s great metropolises could be looming.
-
Why you should start investing earlyMost investors wish they had started earlier, and data shows that starting to invest sooner yields greater results over time
-
Rail fares could spike by 5.8% next year – how to save on train travelJuly’s RPI inflation reading tends to determine rail fare hikes in the following year. We look at how much your train tickets could cost, and how to save money
-
Why investors can no longer trust traditional statistical indicatorsOpinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growthGrowth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estatesThe best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fallOpinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocksStocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?
-
The rise of Robin Zeng: China’s billionaire battery kingRobin Zeng, a pioneer in EV batteries, is vying with Li Ka-shing for the title of Hong Kong’s richest person. He is typical of a new kind of tycoon in China
-
Europe’s forgotten equities offer value, growth and strong cash flowsOpinion Jonathon Regis, co-portfolio manager, Developed Markets UCITS Strategy, Lansdowne Partners, highlights forgotten equities he'd put his money in
-
How retail investors can gain exposure to Lloyd’s of LondonIt’s hard for retail investors to get in on the action at Lloyd’s of London. Here are some of the ways to gain exposure
