Kunal Sawhney, CEO, Kalkine Group, gives his opinion of the world’s housing markets
The obligatory guidance of working from home has primarily driven the demand surge for the new homes across the world, with the likes of Europeans, Americans and Britons queuing up to buy new.
The subsidised offerings backed by the government to push the housing sales have significantly helped in encouraging the homebuyers to make the purchase, especially the first-time buyers. The housing prices are on the run with a continuously increasing wholesome demand away from urban, and semi-urbanised locations.
Excluding the unusual disruption caused by the coronavirus pandemic, the house prices are poised to grow with the emergence of millions of new home buyers every year in most of the developed economies.
The construction sector has showcased a meaningful jump in orders for residential construction, renovation and other activities, with the reopening in different parts of the world following the large-scale vaccination drive.
The real estate market in the United Kingdom, for example, has remained extremely vibrant, especially in the last year, with buyers rushing to purchase new homes. The demand was largely driven by the requirement of bigger houses following the work from home.
The situation in the European and American regions has been largely the same. The low-interest rate structure across the world has favoured the uptake of loans. The average house price breaching the threshold of $400,000 in the US in the present calendar year, following more subdued years in 2017 and 2019.
Back in the UK, the average house prices have risen considerably in 2021, recovering ground from the partial halt in the months of January and February, the time when the nation went under third national lockdown. The prices partly dropped in June, even with the heightened demand and the homebuyers hurrying to encash the extended benefit of the Stamp Duty holiday. The demand for new houses in the country is likely to take a hit after the complete termination at the end of September 2021.
Amidst a large section of the homebuyers who have purchased the houses largely through the bankrolled money, there is a certain likelihood that some will default on the scheduled repayments. However, the proportion of defaulters is likely to remain low unless there is another mega obstruction to employment or any other factor that hampers the spending capabilities of the buyers.
The low-interest rate regime has materially lifted the number of mortgage applications with more people being prepared to apply for higher quantum loans.
Trying to forestall the disruption
Over the last 16 months, governments have somehow managed to prevent the immediate collapse of their economies by injecting billions through various schemes. To avoid a potential bloodbath on the markets, and irreversible damage to their economies, the Washington administration, the European Union and the Downing Street administration have separately undergone whatever it takes to save the ailing enterprises and industries.
As far as the housing market is concerned, average house prices are set to stabilise. The demand for new homes will likely continue but at a moderate pace, as the economies build back from the COVID bottoms, staff return to workplaces, countries expand the number of fully immunised individuals, and productivity improves.
The chances of a crash, such as in 2007 and 2009, are low. The mortgage plays an intensive role in the sales of houses, thereby driving up the prices. But the proportionate rise in the quantum of mortgages in the pandemic era has been low compared with the rise in average house prices across the continents.
Kunal Sawhney is CEO of Kalkine Group, an independent equities research firm that provides detailed financial analysis and insight. Kunal is featured regularly on CNBC, Sky Business, Biz News, Daily Mail, Yahoo Finance, KCBS Radio (Audacy), Bloomberg, Sydney Morning Herald, Global Banking and Financial Review.
Photo: Kunal Sawhney