Economics | American house prices
Real estate investors have had a wild few years. Rate hikes made building more expensive and hampered buyers' purchasing power. But public and private markets have had opposing reactions. As public real estate indexes fell, house prices rose. The MSCI World Real Estate Exchange Traded Fund (ETF) fell 24% last year. At the same time, the Case-Shiller index of American house prices rose 15%.
Why? Rate hikes hurt real estate management and development companies, the largest sector of the global real estate industry by income. That limited new supply and kept existing homeowners stuck in place. As development slows further, new supply will shrink. That will boost profits for existing real estate owners and put a floor under house prices for a while, helping them defy gravity. It won't be until interest rates and costs fall that house prices do, too.
House prices tend to follow building costs. According to Robert Shiller, an American academic, inflation-adjus…