According to a recent Reuters poll of property analysts, the global downturn in property prices is showing signs of recovery. Average home prices in major markets are expected to decline less than previously anticipated at the beginning of the year and are predicted to rise steadily into 2024. This is due to various factors such as higher household savings, limited supply, and increased immigration. The poll results challenge the assumption that central banks will be cutting interest rates in the near future, particularly in economies with high house price inflation, such as the United States, Canada, New Zealand, and Australia.
Property Markets Stabilising
The previous forecast of double-digit price falls, primarily influenced by rising mortgage rates, has not materialised fully. The impact of higher rates has been softened by homeowners who secured cheap mortgages during the extended period of near-zero rates, predominantly in the United States. These homeowners have chosen to stay put, creating lower housing market activity and further restricting supply. While this is good news for existing homeowners, it poses a challenge for first-time homebuyers who have been sidelined for years due to tight supply and were further priced out during the COVID-19 pandemic. Existing homeowners outbid them, leading to double-digit annual increases in house prices.
Despite the recent early stabilisation in housing markets, especially in the United States, Canada, New Zealand, and Australia, which has generated optimism that interest rates have peaked, there is caution regarding the true impact of higher rates. Many property owners are shielded from the effects of higher rates due to fixed-rate mortgages. In addition, the disruption caused by COVID-19 has significantly impacted housing supply and building volumes in most markets. These factors combined with strong demand have created a scenario of strong demand meeting weak supply.
This imbalance between supply and demand was already a challenge in global housing markets prior to the pandemic, with only a few markets like India escaping its effects. The Reuters poll, which encompassed property markets in the U.S., Britain, Germany, Australia, New Zealand, and India, shows that analysts have generally upgraded their forecasts for this year and the next, with the notable exception being China.
In the United States, average house prices are predicted to remain stagnant this year and next, which is an improvement from the previous forecasts that predicted declines of 2.8% and 4.5% in 2023. New Zealand and Canadian home prices, which experienced a surge of 40-50% during the pandemic, are expected to fall by approximately 5% this year before rebounding with an estimated increase of 5% and 2% respectively in 2024. These figures represent an upgrade from the previous poll, which anticipated an 8%-9% drop in 2023 and a rise of 2%-3.4% next year.
India, which did not experience a pandemic-induced housing boom, is expected to see a steady rise in home prices in the coming years. Germany, on the other hand, is predicted to witness a decline of 5.6% in average house prices this year, followed by stagnation in 2024. In the UK, home prices are expected to decrease by a modest 4% this year with no growth predicted for the next year.
Despite the positive outlook for house prices, affordability remains a concern worldwide. A majority of the respondents in the Reuters poll stated that purchasing affordability for first-time buyers would worsen over the next year. Affordability is being influenced by rising mortgage rates, which are placing increased pressure on buyers. The low sales volume obscures the true impact on home prices. However, the demand for housing continues to outstrip supply, leading to an anticipated increase in average rents and a worsening of rental affordability. The majority of analysts surveyed stated that rental affordability would worsen over the coming year.
Conclusion
The global property market is showing signs of recovery, with the anticipated downturn in average home prices being lesser than expected at the beginning of the year. Factors such as higher household savings, limited supply, and increased immigration have contributed to this trend. However, the imbalance between supply and demand continues to pose challenges for first-time homebuyers, who may face worsened purchasing affordability in the coming year. Additionally, rental affordability is also expected to worsen as demand for housing outstrips supply. It is essential for potential investors to carefully consider these factors when making investment decisions in the property market.