BENGALURU / LONDON – The global housing market craze that picked up speed during the pandemic as people struggled to buy more living space is likely to pass as interest rates rise and house price inflation is expected to fall, Reuters surveys by market experts showed.
Huge price increases of as much as 50% over the last few years may be about to end, and turn to modest declines by 2023 in some countries, according to analysts covering nine major world real estate markets.
But they also say that any fall will not make housing more affordable, especially for first-time buyers, just as the basic cost of living is rising and mortgage rates are rising – for the first time in the lives of many young people.
“There’s definitely a slowdown. So the pace of growth is slowing pretty much everywhere… (and) it’s likely that a number of markets will experience price declines,” said Liam Bailey, global research manager at Knight Frank.
“The question really is whether there is a risk of some kind of crash scenario in certain markets.”
So far, most real estate specialists do not even predict a 10% correction in house prices, but instead stick to the view that housing inflation will decline significantly, in most cases to less than the rate at which consumer prices are currently rising.
With wages unlikely to match any of these inflationary trends at some point, agreement is unusually strong among analysts on the framework for basic affordability over the next few years from record-high house prices and higher interest rates.
A more than two-thirds majority of analysts, or 83 out of 119 who answered a further question, said affordability for first-time buyers would either worsen or deteriorate significantly over the next two years. The remaining 36 said it would get better.
Even in real estate markets like India and Dubai – which avoided panic buying and high double-digit annual price increases seen during the worst pandemic in markets like the US, Canada and Australia – analysts still agree that affordability will worsen.
INFLATION CHALLENGES
Part of that has to do with the cost of building new homes, which are almost universally not being built fast enough to keep up with demand.
Sky-high costs from supply chain disruptions that all businesses around the world face will be passed on to first-time buyers, much in the same way that consumers pay more for everything they buy.
“The same inflationary challenges … specifically in the construction market and the supply chain that continue to plague … developers and homebuilders … are not alleviated to any degree,” said Adam Challis, EML’s EMEA Research and Strategy Director at JLL.
“In fact, in the short term, it’s very likely to get worse as people return to the cities … and become much more enthusiastic about their city choices.”
In fact, while analysts are generally reluctant to predict the mindset behind consumer behavior, it was the urge for people to relocate while hit by lockdowns of coronavirus disease 2019 (COVID-19) that prompted them to bid on real estate. Very few expected that to happen.
Looking ahead, there seems to be no reason to predict that existing homeowners floating with housing capital from sky-high prices will be much more reluctant to act on a desire to return to city life.
It leaves first-time buyers, who have been in a difficult situation with a deposit on a property for most of a generation, in a worse situation with each passing year. It can hold even if prices fall.
“Your purchase price may be reduced … but in fact, the cost of servicing a loan may not actually coincide with that price,” added Knight Frank’s Mr. Bailey.
A number of people in most countries, especially young people, have resigned from renting over to owning. But the lack of housing has also driven rents up everywhere.
When asked what would happen to the affordability of the housing rental market over the next two years, more than 80% of analysts, or 82 out of 99, said it would get worse. The rest said it would get better. – Reuters
