over 2 years ago • 3 mins
House prices around the world have been rising and rising over the last year: now the question is whether they’re set to crash back down to earth.
✍️ Connecting The Dots
House prices matter to everyone from would-be homeowners to investors. Arguably, they matter more to the latter than the prices of stocks and bonds and the state of the economy. The reason’s pretty simple: homeowners feel wealthier when house prices are on the up (since they are, at least on paper), and they tend to spend more as a result. That trickles down through the economy and makes everyone else a little richer too.
One group of companies that especially benefit from rising house prices is home improvement retailers. The likes of Home Depot and Lowe’s in the US and Kingfisher in Europe – home to the UK’s B&Q and France’s Castorama – all tend to see their sales tick up in concert with house prices. If your home’s getting more valuable day by day, after all, you’re more likely to spruce it up with repairs or renovations than if it’s not. And after the homebound year we’ve had, there’s been yet another reason to spend on housing: adding home offices and spaces to relax.
But retailers have cautioned that this housing heyday won’t last forever, with homeowners likely to spend more outside and less inside as towns and cities reopen. As for house prices, Bloomberg Economics has pointed out that housing markets including the US, and the UK look like they’re in bubble territory right now. That’s based on how high certain indicators – like the ratio of house prices to rent or to locals’ salaries – are, though the report suggests the market will drop off steadily rather than collapse outright.
1. There are reasons to buy a home now.
Interest rates are still at record lows globally, so mortgage costs are still as low as they’ve been in a generation. If you’re able, then, now might be one of the most affordable times to buy property. And it’s still possible that these favorable housing market dynamics continue post pandemic, with working from home likely to stick around in one form or another. Plus, with the high level of acquisition activity in the industry, there’ll hopefully be sustained demand for real estate to keep up prices.
2. Renting is an imperfect solution.
It’s true that renting might be better value right now: it requires less upfront cash than buying, and it gives you the flexibility to make a purchase when property prices are less frothy. That said, the likes of Blackstone and Vonovia-Deutsche Wohnen are buying up residential real estate left and right, and some commentators are worried higher rents are on the way. That’d probably encourage private landlords to follow suit, and – especially in places where there’s a limited housing supply – you could be left footing higher costs.
🎯 Also On Our Radar
Google’s set to be hit with yet another lawsuit, this time alleging it’s used its mobile app store unfairly. The lawsuit’s expected to focus on Google's requirement that some apps use the company's payment tools to sell subscriptions and content, which Google then takes a 30% cut from. Analysts have been flagging the regulatory risks to tech giants for years now, and it seems they might finally be coming home to roost.
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