Global property markets Part I

According to an article published in the Economist of May 18th,STOCKMARKETS around the world have been stimulated by ultra-loose monetary policy. The response of property markets—the biggest asset class of all—has varied. Whereas the housing boom before the financial crisis was remarkable for its global reach, the recovery after the bust is uneven.
 Among the 18 countries comprised in this article, prices have risen over the past year in 12. The biggest increase has been in Hong Kong, where house prices are up by 24.5%. The biggest faller is Spain, where prices are down by 7.7%.
  Prices have forged ahead by 11.1% in South Africa. They have also been buoyant in two big emerging economies included in our compilation for the first time: Brazil (up by 12.8%) and India (10.7%). China’s house prices have increased modestly, by 3.3%.
  Housing markets are notoriously prone to boom and bust. To judge whether prices are at sustainable levels we use two criterion. One is the ratio of prices to disposable income per person, a measure of affordability. The other is the price-to-rent ratio, in how many years you recover your investment in a house,if you rent your property.
   If these ratios are higher than their historical averages, property is overvalued; if they are lower, it is undervalued.
  On this basis Canada’s market is especially vulnerable. A large bubble now looks set to burst. Home sales in March were 15% down on a year earlier. Buyers are in short supply. A recent poll showed that only 15% of Canadians are likely to buy a home in the next two years, down from 27% last year—the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.

Asian Emerging markets looking fragile

According to an article, published today in the Wall Street Journal "Major emerging markets in Asia plunged Monday on growing concerns among foreign investors that many of the region's largest economies look increasingly fragile as a period of global easy money appears to be coming to an end.The Indonesian rupiah fell to its lowest level in four years and the Indian rupee hit a fresh low adding to signs the emerging market selloff from this summer is deepening.

Global investors are betting the U.S. Federal Reserve will soon start winding down its massive bond-buying program, a view that got a boost from encouraging U.S. employment data last week.

  Global investors are already thinking that the Fed will start to taper its bond buying program.The encouraging data of U.S. initial claims added to this view".

"That belief already has pushed up long-term interest rates and drawn billions of dollars in capital back to U.S. assets. On Monday, the yield on 10-year benchmark U.S. Treasury notes hit a fresh two-year high".

Markets are not convinced by EU Central Bank and Bank of England, forward guidance on monetary policy.

A rise in market interest rates in the euro zone and the U.K. in recent weeks suggests investor confidence in central banks' forward-guidance plans may be on the wane, just weeks after the European Central Bank and the Bank of England pledged to keep interest rates lower for longer.

U.K. government bonds have slumped to their lowest levels in two years and German Bunds are trading at a 16-month low. Contracts tied to European money-market rates that are used to price trillions of euros and sterling worth of assets from corporate loans to mortgages, are predicting that interest rates for borrowers may start rising, if only moderately, as early as 2015.

Even allowing for the fact that holiday-thinned trading conditions have been magnifying moves, it is likely that the two central banks had hoped for a more favorable market response, when they followed the U.S. Federal Reserve in giving an indication to the market that interest rates were unlikely to climb unless the economic recovery appeared more robust.

The fact that bond yields are on the rise and traders have advanced their expectations of rate increases despite soothing words from the ECB and the BOE may force central banks to step in, some investors say.

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