- A report by UBS analyzed the 25 major urban housing markets around the world and found annual housing price growth for 21 of them from the second quarter of 2019 to the second quarter of 2020.
- The 4 urban markets that saw housing prices decline span from China to the United States.
- San Francisco, Hong Kong, Madrid, and Dubai each saw prices fall on an inflation-adjusted basis over the four quarters.
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On a global scale, the housing market has shown strength during the coronavirus pandemic, despite the economic downturn.
A recent report by UBS identified three factors for its resilience.
First, as home prices are a backward-looking indicator of the economy, UBS said they therefore react with a delay to economic downturns. The number of transactions declined in most cities in the second quarter of 2020 compared with the previous year, "complicating price formation and reducing the validity of observed prices."
Second, the majority of potential home buyers didn't suffer direct income losses in the first half of 2020, UBS found. "Credit facilities for companies and short-time work schemes mitigated the fallout from the crisis, supporting employees' housing affordability."
And third, governments helped homeowners in many cities during the lockdown periods, with increased housing subsidies, lowered taxes, and suspension of foreclosure procedures.
The report analyzed annual house price growth rates in 25 major cities from 2001 through the second quarter of 2020. The markets in the study were Munich, Hong Kong, Zurich, Paris, Singapore, London, Geneva, Frankfurt, Stockholm, Vancouver, Milan, Toronto, Tel Aviv, Sydney, New York, Moscow, Amsterdam, Madrid, Tokyo, San Francisco, Los Angeles, Boston, Warsaw, Dubai, and Chicago.
From mid-2019 to mid-2020, UBS found that 21 of these cities saw inflation-adjusted annual price growth, while only four saw inflation-adjusted annual price declines: Hong Kong, San Francisco, Madrid, and Dubai.
Per UBS, Hong Kong's housing market was on the upswing from 2003 to 2019 as a result of economic prosperity and high investment demand. However, a weakening economy put a pause on growing home prices, which are currently 5% lower than they were in mid-2019.
Despite the decline, UBS does not see home prices in Hong Kong correcting much further and sees a slight increase by the end of June 2021 as plausible.
To support this prediction, UBS points to Hong Kong's limited new construction, its history as "the key financial hub within the Greater Bay Area," people seeking citizenship there to avoid the global tax in China, and its low rate of foreclosures.
As for San Francisco, the UBS report explained that inflation-adjusted home prices in the city are still around 65% above their lowest level in 2012. However, they are currently 8% below their peak in 2018.
Per the report, factors that have contributed to a weakened housing market include lack of affordability in the Bay Area, lower investment demand, and a decrease of interest in short-term rentals. However, according to UBS, the lack of homes available in the city have likely limited the downfall of prices.
Madrid has seen home prices drop just under 5% in the second quarter of 2020. However, Between 2015 and 2019 home prices in the city actually increased, on average, by 5%. This increase, per UBS, was due to "attractive financing conditions," a strong supply of new homes, income growth, and interest from foreign investors.
According to the report, lockdown measures and an economic decline will continue to lag home price growth in the city for the foreseeable future.
Dubai, per the UBS report, has seen home prices drop nearly 40% since they peaked in 2014. According to UBS, prices in the city have been dropping for the past six years as a result of "massive overbuilding."
UBS does not anticipate home price growth in Dubai in the foreseeable future because of the rising unemployment rate and high supply.
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