Event Coverage
The Overall Global Real Estate Market Outlook Remains Soft
C.A.R. Deputy Chief Economist Oscar Wei with Glocal Business Council Chair Jimmy Kang on Zoom.
Like the U.S. many economies overseas struggled last year with high interest rates and inflation. Some countries like Sweden had a recession; others, like the UK and Japan experienced a "technical recession," California Association of REALTORS® Deputy Chief Economist Oscar Wei told SILVAR members this week.
Wei said global home sales last year declined due to affordability constraints. Due to the housing shortage, global home price growth accelerated in the third quarter of 2023, increasing at an average of 3.5%. Thirty-five of the 56 markets experienced an annual price growth, while 21 had a price drop in the same quarter.
Wei said China's home prices declined 2.7% year-over-year. Its real estate slumped last year, and housing starts fell by more than 60% relative to pre-pandemic levels.
Wei explained the Chinese market had been booming for a year, which encouraged developers to borrow money to develop more property. The Chinese government got uncomfortable and nervous lenders began to cut developers off. This triggered a wave of defaults by developers. Buyers got concerned about developers' lack of sufficient funding to complete projects and anticipated price declines, so sales declined. While property activity slowed, home prices have only fallen modestly because of rules that allow lenders to delay recognizing developers' bad loans. Some cities limited price declines.
There have since been policy adjustments and China's housing market bounced back in mid-February. However, given the government's goal to "de-risk" the housing sector, home prices there are projected to drop 5-7% in 2024 and 3-5% in 2025. The IMF projects housing investment will drop 45% on average and will remain subdued afterward.
"China does have an impact on the global economy," said Wei. "The global impact of a China slowdown will lead to a softer global economic outlook. From the global economy level, anything that happens in China affects most of the world, especially the U.S. trade with China."
One potential impact could be Chinese investors in the U.S. may be forced to sell commercial properties to cover their losses in China, he said.
Along with China, France and Japan will also likely see price declines in 2024 and 2025. UK home prices could remain in 2024 before picking back up in 2025.
Geopolitical risks remain elevated. According to a Conference Board survey of CEOs, when asked about the main U.S. challenge affecting their business this year, half of them (51%) cited "political uncertainty ahead of 2024 elections" as the greatest challenge. Asked about global challenges for their business in 2024, "the spread of existing wars" (46%) was seen as the greatest global challenge for businesses this year.
"The risk index will continue to affect the global economy," said Wei.
Since the overall housing market remains soft, U.S. home sales from foreign buyers dipped by double digits from last year. On a high note, Wei said California remains one of the top destinations for foreign buyers, second to Florida.
Wei said the Federal Reserve cutting interest rates will have an impact on boosting the number of buyers and sellers, foreign and domestic. However, the rate cut decision is getting delayed because consumer price inflation is stuck at 3.2% in February. The Fed's target is for 2% inflation.
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