Forever blowing (housing) bubbles
If you make it to the stadium, you will hear West Ham fans, who have an ill reputation due to the movie Green Street Hooligans, sing their traditional song “Forever Blowing Bubbles.” For those of you who can’t, the chant starts with the lines, “I’m forever blowing bubbles, pretty bubbles in the air. They fly so high, nearly reach the sky.”
You could argue that, compared to recent episodes in Spain and the U.S., the Turkish housing market has not reached the sky. After all, the real estate information company Reidin’s residential property index has not even doubled in the last five years after hitting rock-bottom in March 2009, when growth reached its nadir and unemployment peaked – it has “only” risen 60 percent. Prices in Istanbul have surged a more “respectable” 75 percent, but even King Kong ain’t got shit on Rio de Janeiro, where the increase since January 2008 is more than 200 percent.
But that doesn’t mean that I don’t expect a correction. After all, the last line of the first verse of the West Ham chant is “And like my dreams they fade and die.” What is most impressive about Turkish housing prices is their resilience: Residential property prices managed to rise in January, despite the graft scandal, weak lira and the dive in consumer confidence.
In fact, I was expecting a correction back in June 2012, when I noticed the mismatch between supply and demand. Not that demand for residential property was weak; it just couldn’t match the spectacular increase in supply. Either supply would have to fall, or demand rise – and I saw no reason for the latter. Boy, was I wrong!
I did not think housing loan rates, which had already fallen a full 2 percentage points since the beginning of the year, had more room to go. But I did not expect the Fed’s third round of quantitative easing in September, which fueled fresh liquidity into emerging markets surged demand by lowering rates. By June 2013, when the Gezi protests and Bernanke’s (in)famous tapering announcement started to raise them, housing loan rates had fallen a further 4 percentage points.
They have been on the rise since then, more so after the Central Bank’s emergency rate hike on Jan. 28. The ensuing sharp increase in banks’ funding costs has not reflected as much on lending as deposit rates yet, as loans have a longer duration. I am expecting an adjustment in residential property prices once the economic slowdown, as hinted by the dive in consumer confidence, and higher rates fully kick in.
So, if fortune’s always hiding and you’ve looked everywhere, as the song goes, look elsewhere if you have already missed out on the Turkish housing bubble. You won’t find it in residential property.