The financial crisis has done its job to curb home buying and depress real estate prices. However, it hasn’t completely killed the market. Real estate has been, and likely will be, a major asset for most individuals. The world’s central banks seem to be committed to holding down short-term interest rates, while creating an environment that also keeps long-term rates low. Naturally, this has a significant impact on mortgage rates around the world.
In The U.S.
The U.S. was at the forefront of the financial meltdown in 2007-2008, with home prices plummeting sharply. As of this year, the median price in the northeast U.S. rose from $239,000 to $253,700. In the midwest, prices rose to a respectable $157,600 in June up from $147,700 in May. The western U.S. saw the largest increase in home values – coming in at 233,000 in June. This represents a 13.3 percent increase from last year. In the south, home prices rose as well, from $159,400 to $165,000.
U.S. mortgage rates are down from August, touching 3.77 percent APR for a 30 year fixed mortgage. A 5/1 adjustable rate mortgage will save you 1.03 percent, giving you a 2.76 percent rate on your home loan.
Brazil’s housing industry is actually growing, surprisingly enough. Property prices are expected to increase modestly – 5 to 10 percent this year in many areas of the country. Reuters recently polled 15 banks, and revealed that major financial institutions are downplaying the risk of a housing meltdown. The rapidly growing Brazilian middle class may be helping to keep prices up.
Average prices in Sao Paulo, Brazil’s largest city, ricocheted up 85 percent from April 2009 to October 2011. Meanwhile, the Reuters poll indicated that home prices are expected to rise between 5 and 10 percent in 2012. Overall consumer inflation is expected to stabilize at 5.5 percent. Unlike their U.S. counterparts, most Brazilians don’t view real estate as an investment. They see it as a way to secure a permanent residence. Some analysts believe that fact alone may help to keep prices growing, or at least keep prices stable.
However, not all analysts agree that Brazil’s future is bright. The 85 percent increase in home prices in Sao Paulo worry some economists and analysts. If that area of the country was an anomaly, there might not be much to worry about, but Sao Paulo isn’t an isolated case.
In Ipanema, in Rio de Janeiro, properties rose 36 percent last year to BRL13,031 per sq. meter. That’s a huge jump over a period of 12 months, and many think it’s unsustainable. In Jardim Paulista, the average price for new homes rose 39 percent to BRL9,120 per sq. meter.
Over the last three years, the FIPE ZAP Index of Dwelling Price Offers reveals that home prices are up 83.7 percent. That equals an average of 27.9 percent annually. While a 5 percent increase could be considered normal, an almost 30 percent annual average indicates an unsustainable run-up in prices.
There are a few reasons Brazil’s real estate market might be rising so rapidly. First, Brazilians’ incomes are rising quickly, giving them more purchasing power. Brazil seems to be in a period of relative economic and political stability with a growing middle class. Its population is also growing. The only elephant in the room seems to be the downward pressure on interest rates from the central bank.
Interest rate targets dropped in August to 7.5 percent, down from a record-low 8 percent in July. This makes mortgage financing incredibly cheap for Brazilians. It could also mean stable revenues for banks if the middle class is growing and home sales are, more or less, permanent. The dark side to this free-flow of cash, however, is inflation. Only time will tell whether Brazil’s housing boom is real or a mirage created by fiat currency.
Brent Wayne is a 23 years old housing and finance writer. He mostly spends his time writing blog posts and editorials or do web content writing for Mortgage Loans. You could reach him at [email protected]