Housing Slump From US to China Adds Risks to Global Economy

Shaky property markets across much of the world pose another risk to the global economy as higher interest rates erode household finances and threaten to exacerbate falling prices.

Reports this week have shown the US housing slump stretched into a fifth month, China’s home sales slide continued and price declines persisted in both Australia and New Zealand. In Britain, prices are now in their worst losing streak since 2008.

Sliding home values threaten to undermine consumer confidence and weigh on household spending, which had been a rare bright spot for the global economy last year. Investment too could take a hit as developers scale back projects in response to falling prices, waning demand and higher borrowing costs.

In the last three housing busts, inflation-adjusted house prices have retraced about half of their previous gains, according to Oxford Economics. Prices have risen about 40% around the world since 2012 and the consultancy said in an October report that in a worst-case scenario, housing market weakness could knock global economic growth to around zero this year.

In the US, last year’s run-up in mortgage rates cast a chill on the housing market, leading to the worst annual drop in sales of previously owned homes in more than a decade. That’s pressured prices, particularly in parts of the country such as San Francisco where affordability was already stretched.

That strain is set to continue during the Federal Reserve’s campaign to tackle inflation. Policymakers are widely expected to raise rates by a quarter percentage point at the conclusion of a two-day gathering Wednesday, to a range of 4.5% to 4.75%.