House prices have set new records in the United States and parts of Europe as sweeping fiscal and monetary stimulus are helping residential real estate markets continue to ignore the impact of the coronavirus pandemic.
The median price of existing homes in the United States rose a record 23.6% year-on-year to a new high of $ 350,300 last month, with every region in the country registering increases, the National said on Tuesday. Association of Realtors.
The housing market in Europe has also continued to climb despite the Covid-19 crisis. In the Netherlands, prices for existing homes rose 12.9% in May from the previous year, the fastest growth rate since 2001, the Netherlands Statistics Office said.
The number of residential property sales declined in both the United States and the Netherlands, even as prices continued to rise, suggesting that demand is exceeding supply. The Dutch land register said it recorded 16,126 residential real estate transactions in May, a drop of 12.1% from the previous year.
Sales of previously owned homes in the United States fell 0.9% between April and May at a seasonally adjusted annual rate of 5.8 million. The total U.S. housing stock of 1.2 million units was 20.6% lower than in May 2020, NAR said, although up 7% from April.
Some economists have said the drop in sales volumes could be a sign that the US real estate market has peaked, after activity reached its highest level since 2006.
“Falling sales and increasing inventories mean that the extreme upward pressure on prices should start to ease soon,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Others see further hikes coming, fueled by central bank policies. “Loose monetary conditions could push asset prices even higher, risking a possible sharp correction,” said Adam Slater, economist at Oxford Economics. “For central banks, neither this result nor ever higher inflation is an attractive prospect.”
Soaring house prices have caught the attention of U.S. Federal Reserve officials, especially in light of its $ 40 billion a month shopping agency mortgage-backed securities, which are part of its $ 120 billion bond buying program.
Robert Kaplan, chairman of the Dallas Fed, recently warned that prices were at “historically high” levels and pointed to large-volume purchases of residential properties by financial investors. Blackstone, the private equity group, Tuesday agreed a $ 6 billion deal to acquire Home Partners of America, a buyer and operator of single-family rental properties with a portfolio of more than 17,000 units.
“More and more, buyers of single-family homes are being squeezed out of the market,” Kaplan said at an event hosted Monday by the Official Forum of Monetary and Financial Institutions, a think tank. “At this point, we wonder if the real estate market really needs this Fed support of $ 40 billion per month.”
James Bullard, chairman of the St Louis Fed, said at the same event that perhaps it was time to consider “pulling out” the agency buying MBS.
The European Central Bank said in a report this week that in the fourth quarter of last year, house prices in the euro area were up 5.8% from the previous year, the highest growth rate since mid-2007 .
He said that Germany, France and the Netherlands accounted for almost three-quarters of the total increase in house prices in the euro area last year.
Rising prices and the shortage of affordable housing have sparked public anger against large commercial landlords in several European countries. Ireland imposed a 10 percent stamp duty on anyone buying 10 or more homes in a 12-month period to prevent financial investors from buying large numbers of properties.
In Germany, the project € 18 billion merger between Vonovia, the country’s largest residential landlord, and rival Deutsche Wohnen has sparked calls for rent ceilings and even the nationalization of businesses.
The issue of house prices has also become a lightning rod for critics of the ECB’s ultra-accommodating monetary policy. Its president Christine Lagarde was questioned on this subject in the European Parliament this week.
“Young people and middle-class families are forced to participate in a mad race, paying too much in an overheated housing market,” said Michiel Hoogeveen, a Dutch Eurosceptic MEP. “This is one of the consequences of your generous monetary creation and your low interest policies to keep the weaker countries in the euro zone afloat.”
In response, Lagarde said there was “no strong sign of [a] eurozone-wide credit-fueled housing bubble ”, but added that there were“ residential property vulnerabilities ”in some countries and cities in particular.