Real Estate and the Global Economy

Courtesy of MSN; Image Source Markus Spiske on Unsplash

When the U.S. housing bubble burst in 2008, major economies all over the globe felt the repercussions.  And just as the U.S. economy and real estate market have been slowly recovering since the crisis of 2008-2009, markets around the world have been rebounding as well.  In the past three years, though, gains in home prices have slowed considerably.  From the post-crisis peak of a 4.3 percent increase in 2016, the third quarter of 2019 showed only a 1.8 percent increase.  Oxford Economics reports four consecutive quarters of year-over-year declines in global housing investments, marking the longest downward trend since 2009.

How Low Can You Go?

While banks have lowered interest rates in recent years, helping to accelerate the housing market, rates are near their lower limit and can’t really be lowered further to compensate for the current downturn.  (For a better understanding of economic cycles and the fact that assets can’t keep going up forever, check out our series The Best Video on How the Economic Machine and Cycles Work, parts one, two and three.)

Global, National and Personal Finances

The slowdown may be bad news for individual nations. GDP goes down when the housing market slows, and furthermore, overall spending tends to go down along with home values because homeowners feel less wealthy. In an increasingly global economy, it can be bad news for everyone: one country’s slowdown influences markets everywhere.  On a personal level, though, it can be good news for homebuyers as prices go down, making houses affordable for more people.

“Even though homes aren’t tradable, like soybeans or car parts, home prices across the world have become increasingly synchronized. This reflects a variety of factors, according to the IMF (International Monetary Fund), including the increasing tendency for economic growth and interest rates to move in parallel across nations.”

Sarah Chaney

The global markets may affect your personal finances, but they don’t control you.  Understanding the cycle can help you know when it’s a good time to invest and how to recognize a good investment opportunity when you see one.

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