Macro commentary by eToro analyst for Romania, Bogdan Maioreanu
The real estate markets around the globe are on the rise sparking discussions about a potential bubble.
The US September Existing Home Sales: increased 7.0%. Compared with a year ago, sales fell 2.3% but each of the four major U.S. regions saw increases in sales on a month on month basis. Total houses for sale at the end of September amounted to 1.27 million units. From one year ago, the inventory of unsold homes decreased 13%, the equivalent to 2.4 months at the present sales pace. The median existing-home sales price climbed 13.3% year-over-year to $352,800.
The U.S. is short 5.24 million homes, an increase of 1.4 million from the 2019 gap of 3.84 million, according to new research. Single-family home construction has suffered from a severe labor shortage that began well before the pandemic but increased largely in the last year. Supply chain disruptions have pushed prices for building materials higher, and as pandemic-induced demand soared, prices for land increased as well. Analysts estimate that the Delta variant’s impact on housing will likely accelerate the hybrid and work-from-home trend that is driving potential buyers with means to upgrade to larger houses. According to a forecast by Fredie Mac, the increase in house price growth will be less transitory than the increase in consumer prices, as the U.S. housing market will continue to struggle with a shortage of available housing for many months to come. The forecast estimates house price growth to moderate in 2022, with full year house price growth of 12.1% in 2021 followed by 5.3% in 2022.
Europe is also seeing growth in housing prices. In Romania the real estate average price per square meter increased 15.9% in September year-over-year from 1304 EUR to 1507 EUR. While in Bucharest the prices increased 16.8% to 1583 EUR/sqm, in Cluj the increase was only 8% but to an average of 1985 EUR/sqm. Probably fearing a possible bubble that can add to an already elevated inflation, the National Bank of Romania intends to tighten from January 1st, 2022 the conditions for taking real estate loans for buying houses that are not intended as the primary residence. NBR intends to raise the minimum owner contribution to 25% for loans in RON, 35% for loans in EUR and 50% for loans in another currency.
Germany registered the strongest increase in real estate pricing in the last 20 years. In Berlin, the prices increased 193.80% in the last 10 years with only 4.9% increase this year for old buildings but 21.8% for new buildings. The rent also increased between 35% and 60% in the last 5 years. This created an interesting situation where more than a million Berliners supported the campaign to expropriate companies holding 3,000 or more apartments. In total, 240,000 properties, or 11% of all apartments in Berlin, would come under the terms of the initiative, which was backed by a majority of 56.4% in the referendum. While the vote isn’t legally binding, the city’s government, which was also elected on 26 September, will have to decide whether to move forward creating a precedent that might reimagine European corporate investments in residential real estate.
On the other hand, China made the headlines lately due to the financial troubles of the Evergrande real estate giant, which has a staggering 300 Billion USD debt and the fears of contagion. In a positive turn of events, Evergrande managed to avert its first bond default after remitting 83.5 Million USD to settle a coupon payment it missed last month. But the situation is far from over, the grace period on a missed $45.2 million coupon is set to expire Oct. 29 and another $14.25 million coupon payment is due the next day. The People’s Bank of China said that Evergrande is its own case, and that most real estate businesses in the country are stable. Real estate and related industries account for about a quarter of China’s GDP, according to Moody’s estimates. Zou Lan, director of the People’s Bank of China’s financial markets department added that authorities would protect individual consumers when it came to their house purchases, and provide financial support for the resumption of construction.
Bogdan Maioreanu, eToro analyst and markets commentator, has over 20 years of experience in financial services and investments and a strong background in journalism. He held different Corporate Banking management positions in both Raiffeisen Bank and OTP Bank, before moving to business consultancy roles working for IBM Romania among others. Bogdan is an Executive MBA from Asebuss and Washington University.
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