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A Surging Global Housing Market

     European, New Zealand, Chinese, and Canadian housing markets are finally surging after years of being in a slump. The international market is growing faster than the United States where the market has been hot. Investors seem to be sticking to equities that invest in the U.S. residential market at a time when investors are turning to international equity bets to find better valuations than in the U.S. market.

     With international real estate, investors are forsaking big income bets, giving up higher yields and better returns at a lower price-to- earnings ratio. Last year 18 of the 23 European housing markets boomed according to research firm Global Property Guide, and shows no sign of slowing. The Vanguard Global ex-US Real Estate ETF fund is the best example. The fund currently has a 12-month yield of 4.58 percent, according to Morningstar, and has notched a price return of 12.12 percent as of May 19. The expense ratio is a measly 0.15 percent. Most of the fund’s $4.2 billion in assets are invested in developed markets in Asia and Europe.

     In the Asian market, China housing prices in Shanghai rose and eye-popping 21.3 percent last year, the Guggenheim China Real Estate ETF has had a blowout year so far rising 22.8 percent that could create a problematic China real estate bubble. Moody’s downgraded China’s credit rating based on the risk that there would be too much debt used to fuel the economy as China’s growth rate slows.

     Of the many factors that influence price swings in specific global markets, currency one of the most influential. After Brexit the British pound fell, and led to a rise in Chinese purchases of London properties since those properties became cheaper in yuan. The main reason however why investors should consider international real estate exposure in their portfolios is the diversification benefits.