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The housing price decline from a global perspective
submited on 12.12.2009 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
While such a comparison might provide useful information about the current state of housing markets around the world, it might also force misleading conclusions regarding future residential market developments.
The real estate market in general is heavily dependent on macroeconomic fundamentals. Bulgaria is still lagging behind most mature economies in the unfolding of the global crisis. The Bulgarian economy was hit by the crisis at a later period of time, as Q3 2008 was the first quarter of tangible impact of the global stagnation on the local economy. Even as of the current moment the performance of the Bulgarian economy is still below trend according to the Eurostat Business Cycle Clock and thus, the recession in Bulgaria will likely extend further into the first half of 2010. On the contrary, many other countries see their fundamental indicators visibly improving, which has favorable impact on real asset prices there. In order to make reliable comparisons, we need to adjust for differences in the economic factors, i.e. keep all other things equal.
One possibility is to compare housing price declines relative to the peak of housing prices, which occurred at different time on different markets. Bulgarian homes have lost 28% of their value since the peak of housing prices in Q3 2008 (about a year ago), while US house prices have declined by some 20% nationwide relative to the peak in Q1 2007, despite the ongoing massive attempts of fiscal and monetary authorities to boost demand for housing there (and very limited monetary and fiscal interventions here in Bulgaria). It turns out that even compared to mature markets the housing price decline in Bulgaria is not that significant (at least thus far), if adjusted for business cycle changes. It is true that housing prices in Bulgaria have been overall much more volatile, but that must not be surprising given that higher growth is usually associated with higher risk.
What is more, if we take a longer, say five-year period, Bulgarian housing has appreciated by 46% compared to Q1 2005, while US housing has depreciated by 11%. Similar results can be obtained if we compare the volume of housing transactions instead of housing prices. This alternative perspective implies that investments in Bulgarian housing property have not performed systemically worse compared to investments in other emerging or even mature markets.
submited on 12.12.2009 in category Political stability | Fiscal affairs | Monetary policy | Macroeconomic developments
While such a comparison might provide useful information about the current state of housing markets around the world, it might also force misleading conclusions regarding future residential market developments.
The real estate market in general is heavily dependent on macroeconomic fundamentals. Bulgaria is still lagging behind most mature economies in the unfolding of the global crisis. The Bulgarian economy was hit by the crisis at a later period of time, as Q3 2008 was the first quarter of tangible impact of the global stagnation on the local economy. Even as of the current moment the performance of the Bulgarian economy is still below trend according to the Eurostat Business Cycle Clock and thus, the recession in Bulgaria will likely extend further into the first half of 2010. On the contrary, many other countries see their fundamental indicators visibly improving, which has favorable impact on real asset prices there. In order to make reliable comparisons, we need to adjust for differences in the economic factors, i.e. keep all other things equal.
One possibility is to compare housing price declines relative to the peak of housing prices, which occurred at different time on different markets. Bulgarian homes have lost 28% of their value since the peak of housing prices in Q3 2008 (about a year ago), while US house prices have declined by some 20% nationwide relative to the peak in Q1 2007, despite the ongoing massive attempts of fiscal and monetary authorities to boost demand for housing there (and very limited monetary and fiscal interventions here in Bulgaria). It turns out that even compared to mature markets the housing price decline in Bulgaria is not that significant (at least thus far), if adjusted for business cycle changes. It is true that housing prices in Bulgaria have been overall much more volatile, but that must not be surprising given that higher growth is usually associated with higher risk.
What is more, if we take a longer, say five-year period, Bulgarian housing has appreciated by 46% compared to Q1 2005, while US housing has depreciated by 11%. Similar results can be obtained if we compare the volume of housing transactions instead of housing prices. This alternative perspective implies that investments in Bulgarian housing property have not performed systemically worse compared to investments in other emerging or even mature markets.
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