Will 2017 See a Global Property Meltdown?

Are property prices about to slump?

The global property market has been a major beneficiary of the monetary policies pursued in recent years. Low interest rates and quantitative easing have not only made borrowing cheaper, they have pushed asset prices higher. However, now the outlook for monetary policy is more restrictive. Higher inflation in the US could be exported across the globe. Could this signal the start of falling property prices this year?

Changing times

The election of Donald Trump could prove significant for global property prices. He is apparently in favour of adopting a looser fiscal policy, with taxes set to fall and spending forecast to increase. This could push inflation higher, which could be exported across the globe. The likely effect of this would be a tightening of monetary policy, with interest rates across the developed world likely to rise in order to cool higher inflation.

Higher interest rates would not only mean existing borrowers have more difficulty in servicing their debts, it could also mean that demand for new loans falls. After all, debt is just like any other market. If it is cheaper, demand is likely to increase. If it is more expensive, demand is likely to fall. As such, it would be unsurprising for global property prices to experience a slowdown of some sort this year.

Uncertainty

As well as higher interest rates, the effect of a Trump Presidency and Brexit could be to cause uncertainty among investors. This may cause a delay or the cancellation of investments in property, since investors have been shown to prefer to make significant purchases when the outlook for the global economy is more robust. This could hurt demand yet further and given that Trump has a four-year term and Brexit talks will last for two years, reduced demand for property could be witnessed beyond 2017.

Long-term factors

Despite this, property could prove to be a sound asset to own in the long run. Another effect of inflation beyond having the scope to push interest rates higher is to erode the value of debt. In other words, a higher rate of inflation will make debt worth less over time in real terms, so that it gradually becomes easier to repay. This is particularly the case for investors who are able to fix their debt at today’s low interest rates.

In addition, the world continues to face pressure on housing. The world’s population is expected to rise by a third between now and 2050, and in much of the developed world there is likely to be a lack of supply in the long run. Therefore, even if global property prices fall somewhat this year, it could prove to be a worthwhile opportunity to invest. That’s especially the case for those investors who are able to fix their borrowing rate. For them, the global property market remains relatively enticing.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Businessman holding tablet and showing a growing virtual hologram of statistics, graph and chart with arrow up on dark background. Stock market. Business growth, planning and strategy concept
Dividend Stocks

TFSA Magic: Earn Enormous Passive Income That the CRA Can’t Touch

If you're seeking out passive income, with zero taxes involved, then get on board with a TFSA and this portfolio…

Read more »

Man with no money. Businessman holding empty wallet
Dividend Stocks

2 Stocks Under $50 New Investors Can Confidently Buy

There are some great stocks under $50 that every investor needs to know about. Here’s a look at two great…

Read more »

potted green plant grows up in arrow shape
Stocks for Beginners

3 Growth Stocks I’m Buying in April

These three growth stocks are up in the last year, and that is likely to continue on as we keep…

Read more »

clock time
Tech Stocks

Long-Term Investing: 3 Top Canadian Stocks You Can Buy for Under $20 a Share

These three under-$20 stocks offer excellent buying opportunities for long-term investors.

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

Beat the TSX With This Cash-Gushing Dividend Stock

Canadian Natural Resources stock is well set up to beat the TSX as it continues to generate strong cash flows…

Read more »

think thought consider
Dividend Stocks

Down 10.88%: Is ATD Stock a Good Buy After Earnings?

Alimentation Couche-Tard (TSX:ATD) stock might not be the easy buy-case it once was. Here’s a look at what happened.

Read more »

money cash dividends
Dividend Stocks

TFSA Dividend Stocks: Earn $1,200/Year Tax-Free

Canadian stocks like Fortis are a must-have in your portfolio to earn tax-free yields for decades.

Read more »