The Wilder View

International housing markets falling

According to the OECD, the sharp decline in global demand has not fully passed through to housing construction – residential plus nonresidential plus public – across many economies; and in some cases, it is still elevated by as much as 2%-3% of overall GDP.


This chart (above) shows the difference between the average trough value of construction as a share of GDP and the fourth quarter 2008 value of construction as a share of GDP. New construction as a share of GDP remains elevated compared to the average recession; and furthermore, that construction is expected to fall further.

This is probably not a shock. Construction in the U.K., Italy, France, Ireland, Netherlands, Belgium, Canada, Spain, and Denmark all have a ways to go before hitting their average trough in construction. This is important from an accounting point of view, as slackening construction (part of gross fixed investment) will drag GDP growth.

But some countries are setting records. Construction in Japan, Germany, and the U.S. has fallen below the average recessionary level of construction as a share of GDP. In the fourth quarter 2008, U.S. construction fell 0.6% as a share of GDP since just last year to 7.1%. And German construction – below 6% of GDP – is at a historic low.

This does not mean that the stock of housing – residential plus nonresidential – is expected to grow and contribute to GDP across the U.S., Japan, and Germany; quite the opposite. In the U.S., private nonresidential construction tumbled 4.3% in January, and according to the Architecture Billings Index (ABI), is expected to fall further in coming quarters. On weak economic conditions and a sharp pullback in demand for housing, U.S. new construction almost 80% off its peak of 2.27 million starts in Jan. 2006. And we all know what happened to U.S. home values, which are 26% off their peak in the fourth quarter of 2008.

And some of these housing markets are feeling the pain as well.


Each market is different, and home values across these markets are not guaranteed to follow the same path as those in the U.S. For example, the slide in Japanese construction is partly due to stricter building codes initiated in 2007.

But something is amiss; for example, Dutch home values fell for the first in 2008 time since 1990 on credit strain. Nevertheless, the OECD study does suggest that generally, growth in the housing stock slows during recessions. And the deeper the recession, the farther will new construction slide.

Originally published at the News N Economics blog and reproduced here with the author’s permission.

2 Responses to “International housing markets falling”

AnonymousMarch 6th, 2009 at 10:54 pm

These above are lagging indicators. And as we know markets lead, not ecomomists, macro or otherwise. There is already evidence of a turn in housing as follows:Home sales increased 100.8% in January in California compared with the same period a year ago, while the median price of an existing home fell 40.5%, the CALIFORNIA ASSOCIATION OF REALTORS (CAR) reported today.“Statewide sales in January edged past the 600,000 threshold for the first time since October 2005,” said CAR President James Liptak.“The strength in California home sales in recent months signifies that the market is gradually working its way through the large numbers of distressed sales that have followed in the wake of the troubled mortgage problem.With favorable home prices and historically low mortgage rates, affordability in the California housing market is now at its highest since the start of the decade.”Closed escrow sales of existing, single-family detached homes in California totaled 624,940 in January at a seasonally adjusted annualized rate, an increase of 100.8% from the revised 311,160 sales pace recorded in January 2008. Sales in January 2009 increased 14% compared with the previous month. The Unsold Inventory Index was 6.7 months in January, compared with 16.6 months in January 2008 (a reduction of almost 10 months), and the median number of days it took to sell a single-family home was 49.9 days in January 2009, compared with 70.8 days in January 2008 (an almost 21 day reduction).Bottom Line: The way the media reports it, you would think we were years away from a recovery in the real estate market, especially in states like California, when some of the housing data suggest otherwise. The 40.5% fall in California home prices is helping to stimulate home sales there, as the Law of Demand would predict. Overall sales volume has increased in California by 20.5%, from $1.32 billion a year ago to $1.58 billion in January this year, the Inventory Index has decreased by almost 10 months, and the median number of days to sell a home decreased by almost 21 days.

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