Weekly Economic Briefing

Homes under the hammer

28 October 2014

Global Overview

  • Housing investment is typically one of the most cyclical components of economic activity, leading economies into recessions and then driving recoveries.
  • The current cycle is different. The aftershocks from the financial crisis have kept housing activity subdued in most developed countries, while demographic factors are also weighing on growth.
  • Although the muted housing recovery is making it more difficult for output gaps to close, it may have the unintended benefit of prolonging the current economic cycle.
  • US residential investment is rebounding from the winter freeze and last year's steep rise in interest rates but the underlying demand for housing remains subdued. Meanwhile, the UK is finally seeing a much needed increase in housing supply.
  • The Eurozone's residential investment share is still falling, with only Germany bucking the trend. Japan's housing recovery has been knocked off course by the sales tax hike and China is starting to pay the price for past excesses.
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US

Housing activity is recovering but weak income growth, tight credit conditions and lower population growth will keep the residential investment share below its pre-crisis norms.

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UK

The UK housing market should remain robust, in spite of a slight slowdown, providing support for residential investment. However, planning constraints remain a
long-term issue.

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Europe

The Eurozone housing market is showing signs of life but we do not expect to see any meaningful rebound in housing investment due to short-term cyclical and long-term structural headwinds.

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Japan

Japan's housing market has hit the buffers. However, while the country's urban areas may continue to see improvement, the longer-term dynamics for the nation's housing stock remain unfavourable.

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Emerging Markets

China's property market is slowing aggressively after years of excess growth in supply. The structural adjustments to the market will take many years to play out.

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Standard Life Investments’ Global Strategy team provide regular analysis of the key economic data that has been influencing financial markets.

Available on a weekly basis, the Weekly Economic Briefing takes a detailed look at the global economic issues that have been impacting our investment strategy. The regional approach aims to provide an easy-to-navigate guide to the most recent developments in the global economy.

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