Haunted housing

House prices are an incontestable economic barometer and Knight Frank's global index speaks loudly. The US is recovering nicely but China is on a runaway train and the rest of the world, including Australia, looks grim.

Suddenly you can see that China is caught between a rock and a hard place, the US is strong, Europe is getting worse and Australia is being ‘Gillarded’. Those conclusions come from just one global measure – house prices.  

No matter where you are in the world, people express their confidence by what they pay for houses. So the movement in house prices tells us what is happening in a country and, sometimes, what is likely to happen.

Accordingly, when Knight Frank produced their global house price index for the year to March 31 it revealed a remarkable story about what is happening around the world.

Let’s start with Australia, where in the 12 months to March 31, despite falls in interest rates, house prices rose a moderate 2.6 per cent including just 0.1 per cent in the final quarter. We face lower commodity prices, a lower dollar and a horrible mess in Canberra and it is showing in house prices, particularly in the March quarter. According to Morgan research Australian consumer confidence is at its lowest level since 2012. Prepare for lower profits.

Contrast that with the US, where in the year to March 31 house prices rose 10.2 per cent including 1.2 per cent in the March quarter.

Last night a string of good US economic news firmed the stock markets. US Consumer confidence surged to a five-year high beating analyst expectations by a wide margin (US consumer confidence hits high, June 26). And US home prices climbed sharply in April – the fourth straight month of gains (US home prices rise sharply, June 24).

Prepare for higher US profits.

Over in China house prices rose a staggering 23.8 per cent in the year to March 31 including 10.7 per cent in the final quarter. In Hong Kong they rose even faster – 28 per cent including 5.1 per cent in the final quarter.

That’s simply too high and the rise will have major social ramifications because houses are being priced out of the range of ordinary people. China’s central bank is desperately trying to quell the speculation but its actions have dramatic effects in the outlook for China’s growth and employment plus Asian share markets. As you can see, China is caught between a rock and a hard place so we will see big policy swings (Why China's crunch is serious this time, June 26).

By contrast Japan’s house prices fell 2.9 per cent in the year and South Korea was down 2.2 per cent.  Japan is attempting to reflate its economy but is struggling to excite consumers, while the problems with North Korea are sapping the confidence out of South Korea.

Then over in Europe it’s all gloom with France down 1.4 per cent and Germany down 1.9 per cent. 

And it gets worse. The four bottom performing global house price markets, according to Knight Frank, are Spain (minus 7.9 per cent), Netherlands (minus 8.3 per cent), Hungary (minus 9 per cent) and, wait for it, Greece (minus 11.8 per cent). European Banks are finding little domestic demand so have been buying high yielding European bonds and they are going to lose their shirt once again (How Europe's making the market a nervous wreck, June 25).