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Deflation Knocks as Global Housing Markets Reverse

Deflation's gathering momentum is evident in several global housing markets where, in some cases, the downturns have been dramatic.

The reversal is starting during the weakest economic recovery since World War II, so fasten your financial seatbelt.

One of the most sudden and pronounced housing-market reversals is in British Columbia, Canada (Huffington Post, Sept. 2):

Vancouver Average Detached Home Prices See Worst Slide in 39 Years

The once red-hot housing market saw sales plummet 71% in the first two weeks of August.

Over 4,700 miles away in Great Britain, another once-sizzling housing market is also cooling, at least at the high end. Again, the reversal of fortune has been dramatic (The Guardian, Oct. 17):

Sales of luxury London properties collapsed by 86% in past year

As prices also decline, worried property developers are now building smaller flats to attract buyers.

A country that might not be the first on your list of thriving real estate markets is Lebanon. Here, the housing market may have peaked (The Arab Weekly, Aug. 7):

Many argue that the real estate bubble in Lebanon has burst. They point to empty apartment buildings as proof that the property market that once thrived in the heart of the Middle East is no more.

Lebanon's real estate sector represents 20% of the nation's gross domestic product, so the entire economy is affected by a reversal. Even so, property developers have been in denial about the developing downturn.

Our September Elliott Wave Financial Forecast said:

A Lebanese real estate agent insists, "Real estate prices cannot fall sharply in Lebanon because lands on which real estate developers constructed their projects were purchased at very high prices." People believe prices cannot fall because they are way up... One day a complete inversion in this thought process will occur: Prices cannot rise because they are so low.

That's what happens when deflation takes hold.

Let's now look at the world's second largest economy, where government plays a big role. In China, prices of luxury homes continue to rise.

Yet, our September Financial Forecast saw a slowdown in another facet of China's real estate sector:

ChinaDeflates

The chart above shows the year-over-year percentage gains in China's property investments in real estate development and construction. From a low in December of last year, property investment popped higher into the second quarter of this year; it has since rolled over... The rate of change fell to 5% in July.

In the U.S., median home prices rose 5.3% in August from a year ago, but the month also brought a surprise (Reuters, Sept. 22):

U.S. existing home sales unexpectedly fall in August

Prices usually follow sales lower. That's what happened in Vancouver. Lower U.S. housing prices might be next.