Housing Prices - Ahead To New Records? Mortgage Loans
Recently, analysts real estate market recorded a significant event: the average cost per square meter of residential real estate in New York crossed pre-crisis peak. And while we are talking about is the price of the dollar and the US region of one (albeit the most important one), do not be amiss to recall what happened three or four years ago.
Then, in late 2013, it has been a favorite pastime of many competition in the apocalyptic predictions. Experts of all sizes, often from a very reputable organizations argued as prices fall - 30, 50% or more. Especially hotheads predicted price drop in a few times. Few Against this background, pointing to the short duration of this trend and excellent long-term prospects of the real estate market. Nobody wanted to stake his reputation, because forecasting house prices - quite a complex and thankless job. Meanwhile, both then and now for the benefit of price increases, and goes on to say said plenty of fundamental factors that are not only not disappeared, but over the years, perhaps only intensified its action.
Despite some problems, the economy has enormous potential for growth, in contrast to developed economies. In these countries, observed in recent years, economic growth has been driven by excessive stimulation of consumer demand through loans. The situation is fundamentally different from the situation observed in developed economies. In our country, the population's demand for many goods and services are not satisfied. And the demand for residential real estate is a prime example - in our country, the number of square meters of living space per one person, 25% lower than in Eastern Europe, almost 2 times lower than in Europe, three times lower than in the US (data for 2014).
Another problem is the volume of new construction. We have many years of marking time in the range of 50-60 million square feet. per year. In order to increase the security of the population living spaces per 1 sq. m, it is necessary to build more than 140 million square feet. m. This figure does not take into account the disposal of old stock. Recall that in the structure of the housing stock of the country account for a large proportion of the so-called temporary housing (the expected service life of about 15 years). In the total housing stock of the country the share of new housing is relatively small. Only 19.3% of residential buildings put into operation after 1995. The bulk of housing is (43.2%), dates back to 1971-1995 years of construction. Another 37.5% of housing put into operation up to 70 years of the twentieth century.
The situation is complicated by the fact that due to lack of investment in infrastructure in previous years, as well as the complexity of the design and coordination of projects to rapidly increase the volume of construction is not possible. According to the Government, before the end of the current decade, every year in our country should be administered approximately 90 million square feet. meters of housing. Even if you do not take into account disposals (obsolescence) of the housing stock, then the construction of such volumes, our country will not reach the current average European level of security even in 2020.
The situation is different with demand factors. Between the crisis of the economy has developed very good pace. Since 1999, GDP grew by an average of more than 5% per year. In the same period, real disposable income and retail trade turnover grew by an average of 8.6 and 9.5% per year, respectively, while the average real wage growth was 12.9% in the year. As a result, for 11 years, real GDP grew by 78%, while real disposable income and retail trade turnover at constant prices have more than doubled. During the same period, real wages increased more than 3 times. Despite the crisis, which began in 2008, the economic growth of previous years has created the preconditions for increasing the purchasing power of the citizens. From 2000 to 2010, annual average nominal income per person increased from 972 to 7550 dollars. At the same time, GDP per capita increased from 1783 to 10,962 dollars. We expect that in the period 2014-2017 the rate of real GDP growth will be in the range of 4.2-4.8%. The main contribution to GDP growth will boost investment and growth in final consumption by the population, fueled by credit growth. Taking into account the deflator is easy to assume that the forecast of nominal GDP will be calculated in double digits.
It is also important to note that as a result of the crisis GDP structure somewhat deformed - redistribution of income in favor of the state household. This step was taken by the state to mitigate social tensions. This redistribution is largely made possible because of the high proportion of public sector employees (more than 50% of the total employed population).
On the one hand, actively indexed wages, on the other hand, rapidly increasing pensions and unemployment benefits. In other words, the state pursued an active social policy. As a result, in 2009 the share of income of the population increased to 73%. In our view, the share of income will return to the average pre-crisis levels, as the redistribution of income in favor of the state households - a temporary measure. However, this greatly increased the base for household savings. Part of the revenue is deposited in the form of savings, will increase steadily as the proportion of expenditure on the purchase of real estate.
Then, in late 2013, it has been a favorite pastime of many competition in the apocalyptic predictions. Experts of all sizes, often from a very reputable organizations argued as prices fall - 30, 50% or more. Especially hotheads predicted price drop in a few times. Few Against this background, pointing to the short duration of this trend and excellent long-term prospects of the real estate market. Nobody wanted to stake his reputation, because forecasting house prices - quite a complex and thankless job. Meanwhile, both then and now for the benefit of price increases, and goes on to say said plenty of fundamental factors that are not only not disappeared, but over the years, perhaps only intensified its action.
Despite some problems, the economy has enormous potential for growth, in contrast to developed economies. In these countries, observed in recent years, economic growth has been driven by excessive stimulation of consumer demand through loans. The situation is fundamentally different from the situation observed in developed economies. In our country, the population's demand for many goods and services are not satisfied. And the demand for residential real estate is a prime example - in our country, the number of square meters of living space per one person, 25% lower than in Eastern Europe, almost 2 times lower than in Europe, three times lower than in the US (data for 2014).
Another problem is the volume of new construction. We have many years of marking time in the range of 50-60 million square feet. per year. In order to increase the security of the population living spaces per 1 sq. m, it is necessary to build more than 140 million square feet. m. This figure does not take into account the disposal of old stock. Recall that in the structure of the housing stock of the country account for a large proportion of the so-called temporary housing (the expected service life of about 15 years). In the total housing stock of the country the share of new housing is relatively small. Only 19.3% of residential buildings put into operation after 1995. The bulk of housing is (43.2%), dates back to 1971-1995 years of construction. Another 37.5% of housing put into operation up to 70 years of the twentieth century.
The situation is complicated by the fact that due to lack of investment in infrastructure in previous years, as well as the complexity of the design and coordination of projects to rapidly increase the volume of construction is not possible. According to the Government, before the end of the current decade, every year in our country should be administered approximately 90 million square feet. meters of housing. Even if you do not take into account disposals (obsolescence) of the housing stock, then the construction of such volumes, our country will not reach the current average European level of security even in 2020.
The situation is different with demand factors. Between the crisis of the economy has developed very good pace. Since 1999, GDP grew by an average of more than 5% per year. In the same period, real disposable income and retail trade turnover grew by an average of 8.6 and 9.5% per year, respectively, while the average real wage growth was 12.9% in the year. As a result, for 11 years, real GDP grew by 78%, while real disposable income and retail trade turnover at constant prices have more than doubled. During the same period, real wages increased more than 3 times. Despite the crisis, which began in 2008, the economic growth of previous years has created the preconditions for increasing the purchasing power of the citizens. From 2000 to 2010, annual average nominal income per person increased from 972 to 7550 dollars. At the same time, GDP per capita increased from 1783 to 10,962 dollars. We expect that in the period 2014-2017 the rate of real GDP growth will be in the range of 4.2-4.8%. The main contribution to GDP growth will boost investment and growth in final consumption by the population, fueled by credit growth. Taking into account the deflator is easy to assume that the forecast of nominal GDP will be calculated in double digits.
It is also important to note that as a result of the crisis GDP structure somewhat deformed - redistribution of income in favor of the state household. This step was taken by the state to mitigate social tensions. This redistribution is largely made possible because of the high proportion of public sector employees (more than 50% of the total employed population).
On the one hand, actively indexed wages, on the other hand, rapidly increasing pensions and unemployment benefits. In other words, the state pursued an active social policy. As a result, in 2009 the share of income of the population increased to 73%. In our view, the share of income will return to the average pre-crisis levels, as the redistribution of income in favor of the state households - a temporary measure. However, this greatly increased the base for household savings. Part of the revenue is deposited in the form of savings, will increase steadily as the proportion of expenditure on the purchase of real estate.
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| Housing Prices - Ahead To New Records? Mortgage Loans |
The greatest trust of the population in US are still in the banks, so a large proportion of savings falls on bank deposits. Was interrupted in mid-2008, the inflow of deposits in banks has resumed in late 2008. Since then, the share of deposits in the structure of citizens' savings grew steadily. This occurred mainly due to uncertainty about the level of future earnings.
We believe that gradually the share of deposits in the structure of the savings will start to shrink, while the housing market has all chances to become one of the beneficiaries of this process. This will be due to increased public confidence in the future and increase the availability of mortgages, low housing supply of the population of US. Do not forget that according to opinion polls over 50% of our population are considering investing in real estate as one of the most reliable way of savings.
Another major factor in the growth of the real estate market becomes a transition from the recovery of the mortgage market to its further development. The past year was marked by the fact that the terms of mortgage lending in the first half of the year was even more attractive than in the pre-crisis period of 2008. This greatly contributed to the significant amounts of excess liquidity accumulated on the balance sheets of banks.
Initially, the growth of availability of mortgage loans has led only to an increase in activity in the real estate market and an end to price cuts; thereupon pulled up prices. This is not surprising: lending rates are at rather low values, while the volume of new loans exceeding their historical highs. The importance of this factor eloquently operating performance public developers: the share of mortgage transactions in the total volume of transactions reached 30%.
To sum up the analysis of demand factors, we can say the transition from the post-crisis recovery of the economy to the gradual development, the growth of money supply and incomes, improving the availability of mortgage loans that persistently pushes up prices. Recurring economic crisis may temporarily slow down this process, but not reverse it.
Prices will reach the top as long as the background on the basic needs of citizens to improve their living conditions will be stimulated by demand factors in the conditions of limited supply. And in order to stop this trend, you need something more than verbal intervention of the authorities. Only one way out - to build as many quality housing. The current situation in the sphere of housing construction brings to mind the analogy of the stock market, which is cheaper than the one from Apple. That and another - a shame for a country with a vast territory and almost a full set of natural resources.
But if the situation in the stock market is not very topical for the broad masses of the population, the expectation of serious progress in the sphere of housing affordability in a society without a doubt great. This kind of test capacity of the authorities in the economic sphere, the positive results that our citizens can feel for yourself. Otherwise, we shall often return to the record price in the housing market.
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