First National Bank’s property economist John Loos says there is a potential indirect impact to come in the local housing market from the property slowdown in the United States.
“The US housing market slump is picking up momentum and while direct contagion on the local residential market should be limited due to low apparent levels of foreign ownership, the indirect impacts via the potential negative impacts of this slump on the US and global economies can be significant.
“As such, I would call the US housing market slump an indirect risk for local residential property and its development activity,” said Loos.
Loos says that from 1999, the local housing boom was driven by the combination of a massive reduction in local interest rates along with accelerating economic growth.
“It is possible that, in future, following the bulk of the local structural adjustments being made as we rejoin the global economy, that the local property cycle will be more ‘in sync’ with major economy property cycles,” he added.
He added that the residential market slowdown began back in 2004 prior to US market weakness, and even prior to rising global or local interest rate cycles.
“The slowdown began largely as a result of the strong positive correction that came as a result of massive interest rate reduction having been largely completed [not to say that there won’t be future positive corrections based on further structural adjustments],” said Loos.
“As in the US, therefore, local residential building activity indices are currently pointing downward, responding to weakening demand growth, but to date this cannot be blamed on any significant contagion emanating from the world’s greatest housing market,” he concluded. – I-Net Bridge