US, UK, Canada, New Zealand headed towards possible housing market crash, to affect global economy: Report

A recent study conducted by Oxford Economics has predicted that four major economies - US, UK, Canada and New Zealand - are heading towards a possible housing market crash, which is indicated by a 10 percent drop in housing prices. All four aforementioned economies are past the 'tipping point', commonly demarcated through a 35 percent probability of such a crash.

New Delhi: Housing market or wider real estate market is sometimes a good indicator of a country’s economy and if there is a downturn in the housing market then it points to a wider downturn in the economy as well. Due to a variety of reasons, the housing market in some rich economies such as the UK, USA, Canada and New Zealand is pointing towards a situation where housing prices may crash in the near future which may have a contagion effect on the global economy.

According to research, if there is a 10% drop in housing prices then it is considered a crash in the housing market. According to the study conducted by Oxford Economics, if there is a 35% probability that the housing market in a country may crash then it is considered a tipping point and there are four countries that are well past this tipping point. These are the USA, Canada, New Zealand and Sweden.

While the world’s largest economy, the USA, is reeling under historically high inflation due to high energy prices triggered by the ongoing Russia-Ukraine war, and has already past its historical tipping point of over 35% probability of a housing pricing crash, the situation in its neighbor Canada, which is also a member of elite economies that are part of G-7 countries, is even more grim as the country has more than 50% probability of a housing price crash.

Similarly, Sweden and New Zealand also have more than 50 percent chance of witnessing a housing price crash by the end of next year.

The United Kingdom, which has recently been dethroned by India as the world’s fifth largest economy is also facing the dangers of experiencing a housing market crash in next 12-14 months, according to the modeling done by Innes McFee, Chief Global Economist of Oxford Economics.

According to the modeling done by the think tank, the UK economy has an elevated chance of experiencing a housing price crash at 25%.

This could pose a fresh challenge for the newly appointed Prime Minister of Indian Origin Rishi Sunak as he seeks to turn around a slowing economy which forced his predecessor Liz Truss out of office within six weeks of taking office.

In addition to the UK, Portugal and Denmark are also reaching near a 20% possibility of a housing market crash, while the situation in other major European economies such as France, Netherlands, Spain and Finland is slightly better.

Surprisingly, according to the modeling done by Oxford Economics, Europe’s largest economy Germany, which is also highly dependent on Russian energy imports, is not expected to witness a housing price crash in the next year or so.

A housing price crash in advanced economies, particularly in the USA, is a cause of concern for other emerging economies such as India.

It was the housing market crash of 2007-2009 that had triggered the worldwide economic recession that lasted for nearly two years and led to either collapse or sale of several leading US banking and financial institutions such as Lehman brothers, Bear Stearns and Merrill Lynch.