Housing’s cracking edifice

As the global financial crisis simmers along and the process of credit creation continues to slow, it is no surprise that house price declines are becoming the norm. With households increasingly denied access to mortgage finance and house prices (generally) expensive relative to both incomes and rents, the oxygen has been sucked out of housing markets.

Those countries where speculative lending had become most endemic and where credit has contracted the hardest have suffered most. Irish home values have sunk close to 50% over the past five years, while in Spain they are down more than 20% and still falling. In a number of large advanced economies house prices are also still sliding. In the US for instance, the Case-Shiller composite index of house prices in the 20 major cities recorded a decline of 3.7% in the year to November, a cumulative decline from the late 2006 peak of almost one-third. In the UK, house prices fell 2% in the final two months of last year (according to Halifax Building Society), a decline of 20% from the peak back in mid-2007. House prices in Australia, while still incredibly expensive, have dipped 5% over the past year, with further declines entirely likely. In China, house prices fell for a fifth straight month in January while in neighbouring Hong Kong property prices have sunk 6% since the middle of 2011.

Fasten your seatbelts because as the credit crunch bites harder this year, house prices all around the world will slump further. There have been a few exceptions so far (South Africa, Singapore and Sweden for example), but they are few and far between.