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An in-depth look at the global downturn in house prices

For many months now, the main question for those who wanted to buy a house was to calculate the profit margin that could be obtained from their investment. After the period of strong price decline that followed the crash in 2008, a new trend change became apparent from, at least, the end of 2013. The growth in house prices has accelerated even in recent years, but, again, some indicators seem to draw an upcoming change in market dynamics. The prestigious magazine, The Economist, has seen a significant deceleration in the rise of real estate prices globally. 

It should be pointed out that, as the British magazine recalls, the data on hand continues to show a more or less clear growth horizon in prices, although they will increase at a lower rate than they did in the last few years. In fact, the rebound in prices in some large cities remains at considerably high levels. Another important factor is that among the 44 cities analysed by The Economist, only a slowdown in the growth rate has been observed in half of them. Of course, in six cities the price growth has not only slowed down; but it has actually reversed. 

Following the above facts, we find very striking cases of the different trends that are already discussed. Berlin, for example, maintains practically the same rhythm of progress as in previous years (13.2%), thus consolidating as one of the European cities in which prices are increasing the most. Of course it should be noted that, unlike other major cities, the German capital barely felt the last economic crisis, during which the price of properties stagnated but did not recede. Copenhagen (12.9%), Dublin (11.7%), Amsterdam (10.6%) or Brussels (10.1%) are the other European capitals with double-digit growth rates. 

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Where is a greater deceleration experienced or, even, a certain setback? Oslo is the most striking case. The Norwegian capital, in which the price of property did not fall back during the Great Recession, had experienced four solid growth years until, in 2018, a sharp year-on-year drop of 12.2% was noted. The data is very striking if we take into account that, at the global level, the next big city in which prices fall the most is Sydney and they do it at a moderate pace of 2.7%. In Stockholm (-1.8%), Shanghai (-1.2%) or London (-1.2%) the average price for buying a house is also reduced. 

With regard to the case of the largest Spanish city, Madrid is in a very particular position within the European market. From the outset, among the cities analysed, the Spanish capital was the second in which prices fell most during the crisis, only surpassed by Dublin. Consequently, this situation gives it a margin of growth greater than that of other cities in the old continent. Second, the change in trend registered in 2014 has been characterised by steady but low intensity growth. 

In Madrid, the variation in the price of property in the last five years barely shows a growth of 18.4% (which translates into a moderate annual increase of 3.7%, on average). Only Lisbon (17.9%), Zurich (14.5%) and Paris (6.3%) have experienced smaller variations during the same period. Consequently, and in the absence of checking the evolution of the sector in the coming quarters, it can be affirmed that the Spanish capital is well positioned in the face of a possible change in trend. The fact that growth has been so sustained, and that prices remain far from the maximums recorded in 2008, justify this forecast. 


However, it is worth knowing what the main causes of the slowdown observed around the world are, even with the regional differences that have already been analysed. The first cause leads us to the demographic evolution of the different countries. The transfer of population from rural to urban areas has been constant since the mid-19th century. Secondly, in many countries (like Spain). However, in some cases this tendency was reinforced during the last crisis, given that in the cities there were greater possibilities of finding work. Having overcome the period of difficulties, the internal migratory movements would have lost steam.

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We can not overlook the rise in demand justified by the increase in large real estate sales during the last three or four years. The fact that the crisis hit rock bottom in Europe in 2012 led many investors (individuals and companies) to move their large capital during the crisis. The Chinese investors, for example, have been decisive in raising prices in cities, such as Auckland, London, Sydney and Vancouver (also Madrid has received investments but in smaller amounts). 
The evolution of demand has already changed in a very appreciable way in some countries. Some governments, national, regional or local, have approved new tax rates, as well as overcome major obstacles to invest in the most attractive areas of large cities. The most extreme case we have seen is in New Zealand, where the recently released centre-left government approved just a few weeks ago a law that prohibits foreigners from acquiring real estate in the country. In parallel, in many countries there is a stagnation and aging of the population, although this phenomenon is much more pronounced in rural than in urban areas. 
The available offer would not be, in principle, a cause that explains the lower advance in prices. In cities like London, the stock of homes has grown much less than the population. Nor is there a special relationship with the monetary policy prevailing in most central banks. The returns on safe haven assets, such as bonds have plummeted and many investors have their sights on the real estate market. Logically, the final decisions of the buyers are more difficult to measure, such as confidence in the future, the political climate or their own important expectations.

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