Europe and US Real Estate House Prices Head Down as Asia Heats Up

A recent revealing report has confirmed what many thought to be on the cards: property prices are dropping in Europe and the US but what many have overlooked are that in Asia they are doing the exact opposite.

However, the report, compiled by globalpropertyguide.com which collated 27 national house price indices for the 2nd quarter of 2007, also highlighted the massive growth going on rather quietly across Asia, with annual house price inflation accelerating across the Asian residential markets, thanks to strong economic growth in the region and subsequent urbanisation. Interest rate hikes and subprime lending jitters have hit the US and Europe rather hard of late, the European Central Bank raising key interest rates to 4% in June 2007, the highest level for six years. This has lead to notable drops in the US being the lowest annual growth recorded in almost ten years. According to news from OFHEO, house prices have dropped between Q2 2006 to Q2 2007 in five states, namely Nevada, Michigan, California, Massachusetts and Rhode Island. Despite rising interest rates, the market for property in the UK continued to register double-digit growth in stark contrast with the Irish markets managing a meagre rise of just 0.89% year on year to the second quarter of 2007, a dramatic decline from 15.15% over the same period on 2006.

House Prices in Europe

Throughout Europe all is not well either, the real estate markets of the Baltic holy trinity of Latvia, Lithuania and Estonia dipped despite remaining fairly strong as the top five property performers over the past year. Spain experienced its lowest house price increase in nine years, thanks to purchases mainly dependent on variable- rate mortgages, making the market vulnerable to interest rate changes. Other European countries that have experienced lower house price increases than in 2006 were Sweden, Finland, Italy and Switzerland with Israel sitting a the bottom of the table with a year-on-year 6% fall in prices.

Asian Real Estate Prices

However, other than in Thailand, where house prices dipped slightly due to political uncertainties, the Asia-Pacific region is booming, with Singapore leading the charge, reporting the biggest climb after its 8-year property slump, average house prices up by a quarter in the period compared with a 6% gain in 2006. House price inflation also picked up strongly in Japan, the country’s 15-year downturn definitely over, with prices in its ‘Big 6’ cities up by 7.75%. The steady flow of money home from overseas Filipinos has fuelled the market in the Philippines, with prices up by 14.29%. Hong Kong and Australia also showed strong gains, despite higher-than-average interest rates, with market price rises of 8.78% and 9.54% respectively.

Finally Africa, whose contribution to the global real estate landscape at present may be small, it too is enjoying house price inflation with South Africa reporting 15.36% year on year growth to second quarter in 2007.

The international real estate outlook here in the Western Hemisphere may appear to be bleak, elsewhere the picture is much rosier for our Eastern counterparts.