What’s behind the global real estate market situation and the global recession

Home prices are breaking records around the world, but this time it’s because of how fast they’re falling. Stockholm homes are now 20% below their peak, Sydney prices are down about 14% over the year, San Francisco is down 15%, Auckland is down about 22% and Toronto is down 16%. is falling.

Germany sees the biggest six-month price decline in 20 years, while France is forecast to fall between 5% and 7% this year.

In the meantime, think about homeowners in Seoul, South Korea’s capital. Home prices have reportedly fallen 24% since October 2021.

Germany sees the biggest six-month price decline in 20 years, while France is forecast to fall between 5% and 7% this year.

In the meantime, think about homeowners in Seoul, South Korea’s capital. Home prices have reportedly fallen 24% since October 2021.

UK house prices have fallen to date, down 4.2% and 3.2% respectively from their peak in August last year, according to Halifax and Nationwide.

So what’s behind the global mini-crash and can lessons be learned from what’s happening in other countries?

In the simplest case, it’s about the cost of money. The long era of near-zero interest rates that made borrowing to buy a home the cheapest in history is over, at least for now.

The Bank of England has raised interest rates from 0.1% at the end of 2021 to his 4% today. Along with this, mortgage interest rates are also rising. Meanwhile, average long-term mortgage interest rates in the US are currently over 6%. A year ago it was less than 4%. 

In the UK, millions of borrowers have fixed-rate contracts, which protect them from skyrocketing monthly mortgage costs. This is very different from countries like Sweden, where most households have variable rate mortgages that increase as interest rates change.

As many economists have pointed out, some cities and some types of real estate have seen phenomenal rises in the wake of home price declines, with values ​​not returning to where they were a few years ago. is often Few people predict a full-blown real estate crash.

Part of the price drop is due to the unwinding of the “space race” that was a global phenomenon during the coronavirus pandemic. Demand for large single-family homes soared. But in his one year, the price of ordinary housing has fallen more than that of apartments.

But even in a global recession, there are always places that are booming. Luxury real estate prices in Dubai, a lockdown western haven for Russian oligarchs, have seen a staggering 89% rise in 2022, according to real estate agent Knight Frank.

Sweden

Europe’s fastest falling market

What’s in the data: In the 12 months to December 2022, apartments fell by 11% and houses fell by 13.7%. (Source: HOX Valueguard). Stockholm homes down 19.8% from peak to valley, apartments down 11.6% (Source: SBAB.se)

Sweden, the European country with the steepest drop in house prices ever, has been hit by a fairly brutal rate hike, and with most households using floating rates, the impact was immediate.

The chief economist of Swedish mortgage bank SBAB, Robert Boye, said: This means that when the central bank raises interest rates, mortgages pass through faster in Sweden than in many other countries. Just a few years ago, variable mortgage rates in Sweden were only around 1% (when Riksbank’s base rate was minus 0.5%). It is currently around 4.5%. ”

London-based consultancy Capital Economics said that “Swedish property prices have fallen 18% from their peak and could fall about 5% further from here.”

At Valueguard, Sweden’s most widely used index, CEO Henrik Åkerblom said: Young people had never seen high interest rates. ”

Russia’s invasion of Ukraine (Sweden is a neighboring country across the Baltic Sea) also took a toll on confidence.

 “The decline was when Russia invaded Ukraine,” says Åkerblom.

Australia

Nine straight months of price falls

What’s in the data: Nationwide prices fell 7.2% in the year to January 2023, falling every month since April, marking the biggest and fastest decline since at least 1980 (Source: CoreLogic HVI)

Among major cities, Sydney led the decline in prices, with annual prices he falling 13.8%. World-famous for its beaches and laid-back lifestyle, Byron’s Bay homes are down 25% of his.

Many economists are predicting further declines in the first half of this year, with the central bank, the Reserve Bank of Australia, expected to raise interest rates again from his current level of 3.35%, the highest in just over a decade. increase.

AMP Capital’s Shane Oliver forecasts a 20% decline in overall prices across the country, noting that higher mortgage rates have reduced the purchasing power of buyers relative to average incomes by 27%. Many existing homeowners are facing a steep rise in monthly mortgage costs as fixed rates soon end and will be replaced by new interest rates approaching 6%.

But the decline in prices must be seen in the context of the dramatic rise of recent years.The International Monetary Fund recently named Australia one of the ‘least adjusted’ and most affordable property markets in the world. expressed as one.

New Zealand

The biggest global price falls

What’s in the data: Median home prices fell 13.3% in the year to January 2023, while Auckland home prices fell 21.7%. Transactions down 27% (Source: Reinz Index)

New Zealand’s largest city, Auckland, has been hit by weeks of inclement weather, which has also hit the property market. Most real estate economists believe the country’s recession is still only two-thirds full, and forecast a peak-to-trough decline of about 22%.

Auckland prices rose more than 40% from early 2020 to early 2022 during a classic boom and bust. This is underpinned by record-low interest rates and government actions to protect the economy from the coronavirus. Prices rose to an average of NZ$1.3 million (£675,000). However, as interest rates have risen, the bubble has burst and prices in the city are now below NZ$1 million.

Germany

An abrupt end to a decade-long boom

The contents of the data are as follows. Nationally, prices rose 2.1% in his 2022 calendar year, but fell 1.8% in his final three months of the year.

“Many of the 2022 crises have now left their mark on the real estate market,” said Jens Tolckmitt, managing his VDP at the German Pfandbrief Banking Association. “We expect further declines in the next few quarters, but overall we expect it to moderate… even if the overall decline is 15% over the long term, it will still be at early 2020 levels. ”

Germany is often seen as a “healthier” real estate market than the UK, but prices in Munich, Germany’s most expensive market, are well above those in London.A typical apartment in Munich is priced at €800,000 (£710,000), but single-family homes average €1,840,000. The London average (apartments and houses combined) is £528,000 (Source: Nationwide Index, Q4 2022).

Spain

First price drops begin to appear

What’s in the data: Nationwide, prices rose by 7.2% in 2022, but in December price increases almost stopped as new mortgages fell by 22.5% (Source: Consejo General del Notariado)

Spain was one of Europe’s fastest growing markets last year, with Madrid prices up 12.2% on average and home deals at their highest level since her 2007 boom.

But as El País pointed out in early February, “the slowdown in the real estate market is real.” It is currently strongest in Spain’s most expensive market, the Balearic Islands, where sales fell to 3% in December. decreased by a factor of 1, and prices are down month-on-month. In particular, average prices across Spain are still below his pre-crisis 2007/08 levels.

France

Boom ends, with prices forecast to slip through 2023

What it says: Paris apartment prices fell by 1% in the year to September 2022, while all apartment prices rose by 6.4% nationwide (Source: Insee.fr)

One of the problems with comparing house prices internationally is that the data is counted differently in each country. The UK and US data focus on housing, while much of the European data is the cost per square meter of apartments. France is difficult to track as the published figures only capture the position several months ago. As a French real estate agent told The Guardian, “All the data is out of date. It’s like predicting the weather last fall.”

However, as everywhere in Europe, it is clear that sales and prices are falling. “Prices in big cities such as Paris, Bordeaux and Lyon have fallen again after many years of strong price increases. Chairman Trevor Leggett said.

Century 21, France’s largest real estate company, predicts a price decline of 5% to 7% in 2023, at least in certain sectors. Home prices in major cities began to fall last summer, he said.

US

Gentle declines nationally but San Francisco crashes

What’s in the data: S&P’s Case-Shiller index shows home prices rose 7.7% nationwide in the year to November 2022, the most recent data release available. However, since June, it has decreased by 3.6% nationwide and by 5% in the 20 largest cities. According to the California Association of Realtors (CAR), the average single-family home price in San Francisco fell nearly 15% – (£207,950) to $250,000 in the year to January, to an average of $1.38 million. I was.

After the Federal Reserve began raising interest rates, a correction in U.S. housing prices was inevitable, pushing up the cost of mortgages rapidly. It jumped sharply from 3.9% to 6.3% in one year.

Miami, Tampa and Orlando were the hottest US housing markets in 2022.

But the San Francisco Bay Area, which has been hit hard by rising interest rates and the massive loss of tech jobs, has accelerated the decline in stock prices. In wealthy Marin County, just behind the Golden Gate Bridge, average home prices are down a staggering $300,000 (19.9%) in just one month, according to CAR’s January figures. .

However, the Bay Area’s staggering growth in recent years has been followed by a decline, and even after a sharp decline, average prices have only returned to 2019 levels.

UK house prices – falling, but how far and how fast?

The latest data from Nationwide show that home prices have fallen for four straight months (October to January), with annual price gains dropping from 14.3% in March last year to 1.1% in January. I’m here.

Competitor Halifax said home prices had been steady in January but have fallen every four months, with annual price gains in January at 1.9%.

Halifax had previously predicted that average UK prices would drop by about 8% this year, which would “return average home prices to levels around April 2021, offsetting only some of the gains gained during the pandemic.” reverse.”

Economists across the country have suggested that home prices “could fall about 5%” this year.

Her real estate agent, Savills, has forecast that average UK house prices will fall 10% this year, with “growth expected again in 2024 as affordability pressures begin to ease”. .

Investment banker Nomura is one of the most pessimistic. Last month, he predicted that UK house prices would fall 15% by mid-2024.