Economists, armed with the latest OECD data, are hinting at a recovery for the global housing market, pointing out that the worst downturn seen in a decade might finally be taking a U-turn. Let’s dive deep into the state of global house prices, examining the trends across advanced economies and unpacking what the future holds for homeowners and potential buyers worldwide.
The Turn of the Tide
Recent data paints a hopeful picture, showcasing a 2.1% increase in nominal house prices across the industrialized nations of the OECD during the third quarter of 2023. This uptick contrasts sharply with the sluggish growth rates that plagued the market at the outset of last year. Interestingly, only a fraction of these countries experienced a decline in the latest quarter, which is a huge reduction from the more widespread downturns earlier in the year.
Economists like Andrew Wishart from Capital Economics are optimistic, suggesting that the market correction we’ve been bracing for has already occurred. This recovery comes after central banks across most economies embarked on a rapid interest rate hike spree to combat inflation, which took a toll on housing prices towards the end of 2022. But things have started to change. Mortgage rates are going down because people are expecting borrowing costs to go down, and there aren’t many homes for sale, which is giving the market new life.
Regional Rhythms and Economic Echoes
The recovery tale is nuanced, with different strokes for different folks. While some countries, including Germany, Denmark, and Sweden, might continue to see a dip in prices due to their significant rental markets, the overall sentiment is one of cautious optimism. In nations like the UK, Canada, and Australia, factors such as migration and tight planning permissions are keeping the pressure on prices, offering a glimmer of hope for a robust recovery.
Mortgage rates, a critical component of the housing market’s health, have begun to soften, offering relief to many homeowners and buyers. Despite a slight uptick in rates in the UK and the US as of February, they remain significantly lower than their peak levels in 2023. This easing of mortgage costs is pivotal, especially for households transitioning from fixed-rate deals, presenting a more favorable borrowing landscape compared to the preceding year.
The US housing market is especially strong because of its strong economic and job growth, which has made average house prices go up. On the other hand, countries like Germany have problems. Their economies aren’t doing well, and there is a big rental market that causes prices to drop every year.
In Australia and New Zealand, as well as Korea, there’s a resurgence in house price growth, signaling stabilization after previous downturns. The EU, too, witnessed a nominal increase in house prices in the third quarter, reversing the declines observed at the year’s start, albeit still trailing on an annual basis.
The global housing market’s future remains a hot topic, with various factors at play. While the downturn was milder than anticipated, with revised forecasts suggesting less severe contractions in countries like the US and the UK, the narrative is far from uniform. China, for instance, is grappling with a significant housing downturn, with expectations of continued price falls over the next couple of years, highlighting the varying trajectories of global house prices.
Despite shifts in trade dynamics and challenges such as economic slowdowns and deflationary pressures, the global value chain’s reliance on China remains substantial. Because of how linked everything is, the global economy will continue to affect how fast and how far the global housing market recovers, even if it seems to be getting better in some places.
