Oct 1, 2019

The global real estate rethink

Reproduced from UBS; Chart: Axios Visuals

Housing and real estate are going through a period of systemic change that could reshape how we think about the sector in years to come.

What's happening: Prices in the largest U.S. cities have stagnated for the first time since 2011, mortgage applications are falling and even ultra low interest rates have not been enough to lure buyers back to the market, data shows.

What it means: "Mortgage interest rates in many cities aren't the major challenge for house buyers anymore," Claudio Saputelli, head of real estate at UBS Global Wealth Management, said in the asset manager's annual Global Real Estate Bubble Index.

  • "Many households simply lack the funds required to meet the banks' financing criteria, which we believe poses one of the biggest risks to property values in urban centers."
  • Buying a 650-square-foot apartment exceeds the budget of people who earn the average annual income in the highly skilled service sector in most world cities, per UBS.

Why it matters: It's the end of the boom, Saputelli and Matthias Holzhey, head of Swiss real estate investments, write. The exponential rise in housing prices combined with a lack of major wage gains for average American workers over the last 3 decades may have finally topped the fast-growing urban housing market.

  • Real prices in all 4 of 2016's top-ranking cities have fallen. On average they are down by 10% from their respective peaks.
  • "Owning residential property in global cities has been a sure road to wealth accumulation. However ... real price appreciation can no longer be taken for granted."

Details: Currently, the analysts see 7 cities at high risk of being in a real estate bubble, but more importantly they see a rethink of housing as an asset taking place across the world's developed economies.

  • While the U.S. housing bubble risk has receded as prices have stagnated, the eurozone is now at the greatest risk of a housing bubble, as ultra-low interest rates have helped push many of Europe's cities to price levels reminiscent of bubbles past, UBS analysts said in the paper.

Go deeper: U.S. mortgage rates rise while applications and home prices slow

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The missing housing boom

Illustration: Aïda Amer/Axios

The real estate market should be experiencing a boom — but it's not. In fact, the U.S. housing market has been stagnant for the last 3 years and is beginning to turn lower, data shows.

Why it matters: Anyone who bought residential property in the last 40 years, even at the height of a bubble, has been able to count on rising home values. But those days may be over: Real estate prices have far outpaced incomes and lost their correlation to them.

Go deeperArrowOct 21, 2019

Exclusive: Cities see signs of recession on the horizon

Data: National League of Cities City Fiscal Conditions Report; Chart: Axios Visuals

Almost two in three finance officers in large cities are predicting a recession as soon as 2020, according to a new report from the National League of Cities, as weakening major economic indicators and shrinking revenue sources put pressure on municipal budgets.

Why it matters: One of the first signs of changing economic conditions can be seen in city revenue collections. For the first time in 7 years — generally seen as the recovery phase since the Great Recession — cities expect revenues to decline as they close the books on the 2019 fiscal year.

Go deeperArrowOct 23, 2019

Existing home sales remain mediocre

Data: Investing.com; Chart: Axios Visuals

U.S. existing home sales fell 2.2% in September as the housing market continues to tread water with a dearth of properties for sale, especially cheaper homes, and a lack of interested buyers despite historically low mortgage rates.

Why it matters: It's the latest example of the U.S. real estate market's continued struggles.

Go deeperArrowOct 23, 2019