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The US And European Real Estate Markets Experience Downward Shift

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EDITOR COMMENT:

A rare bird in the housing market: As the price of goods and services continues its upward surge, real estate markets are beginning to exhibit declines. 

 

What’s going on? Home prices and mortgage rates are reaching exorbitant levels, causing potential homebuyers to hold off on making a purchase. Of course, that’s exactly the effect the Fed’s trying to achieve by hiking interest rates.

Our thought bubble: As we reported earlier, consumer habits are shifting from discretionary and big-ticket items to staples. While we all hope that the price of goods and services across the board will begin to deflate, as what’s now happening in real estate, the latest wholesale price index indicates that inflation may still continue to heat up in the coming months as input costs have yet to find their way into consumer prices. In short, inflation might still have some way to go before peaking.

(Bloomberg) -- The US and European real estate markets are experiencing a downwards shift in prices as buyers fall away, according to the global chief investment officer of Hines, one of the largest closely held real estate investors in the world.

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Prices have fallen by about 5% to 10% compared to a year earlier in some areas, according to David L. Steinbach, with Europe following a trajectory set in the US. “I think we’re in for a rough few months,” he said. “This year is going to be choppy water.”

Businesses are re-examining expansion plans in light of higher costs, Steinbach said in an interview in Abu Dhabi. Rising interest rates are feeding through into higher funding costs, further dampening demand, he added.

“Higher inflation is without a doubt making its way into private real estate,” Steinbach said. “The bidding pools are becoming thinner.”

Real estate can provide a hedge against inflation as some leases are indexed to take account of rising prices. But more than a decade of rock bottom rates and anemic returns in bond markets pushed up prices to record levels in many areas, making them vulnerable to rising borrowing costs.

Houston, Texas-based Hines manages about $90 billion in real estate assets with a presence in 27 countries. Steinbach was in Abu Dhabi meeting some investors in its funds which also partner with it on projects.

The market for office space has been hardest hit in the US, Steinbach said, with demand for rental housing also starting to thin. “Some sponsors are having some trouble getting financing, so that alone is reducing the bidding pool,’ he said.

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Originally published on Yahoo Finance.

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