Global house price downturn fades; markets may rise in 2024
The recent downturn in global property prices is mostly over with average home prices in major markets now expected to fall less than anticipated at the start of the year and rise into 2024, according to a Reuters poll of property analysts.
Double-digit price falls that the analysts forecast earlier this year due to rising mortgage rates haven’t materialized in full as higher household savings, tight supply and rising immigration limited declines.
Sharply higher mortgage rates, as a result of more than a year of interest rate rises by key central banks, haven’t affected everyone, either.
Many homeowners who locked in cheap mortgages during a long period of near-zero rates, particularly in the United States, have decided to stay put. That has restricted supply and housing market activity.
But that’s more bad news for aspiring first-time homebuyers left on the sidelines for years by tight supply and priced out during the COVID pandemic when existing homeowners outbid them, pushing up house prices at double-digit annual rates.
The latest poll results — particularly for economies with the fastest house price inflation in recent years such as the US, Canada, New Zealand and Australia — challenge the assumption the next move from most central banks will be to cut rates.
Indeed, much of the optimism around the unexpected early stabilization in these markets has stemmed from speculation interest rates have topped out and that as soon as the first half of next year, they’ll be coming down again.
“Probably over the last two months there has been a little bit too much positive thinking around the impact of a peak rates scenario. I think we haven’t really felt the full impact yet of higher rates. Fixed rate mortgages have meant many owners of property are being kind of shielded from the impacts,” said Liam Bailey, head of research at Knight Frank.
“I think the reality is you’ve got very low supply and house building volumes in most markets because of COVID disruption and supply chain disruption … You’ve also got quite strong demand in most Western markets. The fundamental point is strong demand meets weak supply.”
That was already a serious challenge across global housing markets before the pandemic, which only a few markets like India missed.
The Aug. 14-31 Reuters poll of over 130 housing analysts covering property markets in the US, Britain, Germany, Australia, New Zealand and India showed analysts broadly upgrading their forecasts for this year and next. China is a notable exception to the optimism.
Average US house prices were forecast to stagnate this year and next. In the May and March polls, 2023 values were forecast to fall 2.8% and 4.5%, respectively.
New Zealand and Canadian home prices, which soared 40-50% during the pandemic, were predicted to fall around 5% this year and then rise about 5% and 2%, respectively, in 2024.
Those were upgrades from the 8%-9% drop expected in 2023 and a 2%-3.4% rise next year in the last poll.
In India, which did not have a pandemic boom, home prices are set to rise steadily over the coming years.
Average prices in the German housing market were forecast to fall 5.6% this year and flatline in 2024. UK home prices will drift down a modest 4% this year with no growth next year, according to the poll.
Affordability is set to remain a problem globally.
Overall, a majority of respondents, 55 of 103, who answered a separate question said purchasing affordability for first-time homebuyers would worsen over the coming year. The remaining 48 said it will improve.
“Mortgage rates have continued to rise, and that is putting increased pressure on affordability. Sales volume is low, which obscures exactly how bad the pressure is on home prices,” said Brad Hunter of Hunter Housing Economics.
But with demand for housing outstripping supply, average rents were expected to rise and rental affordability to worsen.
A near two-thirds majority of analysts, 65 of 101, who answered an additional question said rental affordability would worsen over the coming year. The remaining 36 said it will improve.
Source: Business World