International Trading

Summary

• The drastic decline in the cohort of first-time homebuyers in many advanced countries is a little known phenomenon by virtue of the fact that economists tend to focus much more on the cohort of workers. To our eyes, this drop represents a non-negligible risk for the economy of certain countries as real estate constitutes the main component of household wealth.
• In the past, any stagnation or contraction in this cohort may have been offset by increased access to homeownership via a structural lowering of interest rates. However, this has not been the case for Japan and Germany, where home prices have fallen 47% and 10%, respectively, since peaking. 
• The demographic shock that awaits the euro zone and Japan over the next 5 years is unprecedented. In Canada and the United States, instead, demographic trends promise to be much more favourable.
• Now that the structural lowering of interest rates appears to be a thing of the past, a sustained increase in homeownership rates is unlikely. Moreover, in our opinion, the popular belief that real estate constitutes a preserver of wealth will be severely challenged. A decline in home prices would result in an erosion of household wealth. This is likely to affect consumer behaviour, which in turn will amplify the impact of government deleveraging on economic growth.