Global home prices rise to their highest since 2010 due to low-interest rates and tight supply
Rising global house prices are rising at their fastest rate since 2010 due to low interest rates, supply shortages, and ample household savings.
Rising house prices around the world, from the US, China, Vietnam to the Netherlands, have raised fears of a bubble, prompting governments to intervene.
Before the pandemic, policymakers had worried about high property prices in parts of Asia, Europe, and Canada. This is the result of many years of low-interest rates in many countries, causing the demand to buy houses to go up.
However, as countries pump more trillions of dollars into their economies to ease the effects of Covid-19, plus shopping behavior changes as people work remotely, real estate prices accelerate.
This puts policymakers in a dilemma
They want to keep interest rates low to maintain economic recovery after the pandemic. However, they also worry about people taking on too much debt to buy homes whose prices could stand still or fall. Other tools to cool the market, such as tightening mortgage rules, often don’t work or are delayed because officials want the economy to grow first.
The Danish central bank recently warned that cheap credit and increased savings during the pandemic could cause people to take out more debt to buy homes, sending property prices into an upward spiral. “It’s clear that house prices going up 5-10% a year is not sustainable,” said KarstenBiltoft, the assistant governor.
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In China, authorities are also clamping down on a property market that a bank official once described as a “bubble”.
In New Zealand, authorities recently tightened mortgage lending rules, when the average house price in February increased 23% year-on-year to a new record. The demand for mortgage loans is so high that many banks can’t even meet it. In some cases, mortgage application processing times have increased from a few days to more than a month.
“It’s crazy. We’ve never been this busy and we’ve seen this many applications. It doesn’t look like things will calm down anytime soon,” said Christian Stevens, credit advisor at mortgage brokerage Shore. Financial said. In Shenzhen, housing prices rose 16% in the past year.
House prices in the rich countries of the Organization for Economic Cooperation and Development (OECD) set a record in the third quarter of last year. Prices are up nearly 5% in 2020 – the fastest in nearly two decades. In Sydney (Australia), property prices also recently peaked.
The US also saw a sharp increase in house prices
Economists aren’t too worried, though. Compared to previous real estate boom periods, buyers now have higher credit scores and also pay more upfront.
Economists also say that a repeat of the 2008 crisis is unlikely. Hot markets can naturally cool down as interest rates rise and demand is met. As in the US, much of the global purchasing power is driven by real demand, not speculation. Families are looking to buy larger homes in the suburbs because they have to work remotely.
Knight Frank’s survey of 55 countries shows that the average annual home price has increased by 9.2% in the year to June 2021. This rate is also nearly double the rate of 4.3% compared to the same period last year when the real estate market in many countries warmed up.
Overall, one in three countries in the survey recorded double-digit price increases, including Russia and Germany. Knight Frank data shows home prices in the US, Australia, New Zealand, Turkey, and Canada increased by more than 16%.
Global house prices set a new record
“The housing market continues to boom due to the pandemic,” said Kate Everett-Allen, head of international housing research at Knight Frank. However, strong price increases are more common in advanced economies, where many policies support employment and allow households to save money.
According to Knight Frank, the average house price growth rate in developed economies is more than twice that of developing countries. India and Spain were the only countries that recorded a decrease.
The study aligns with an analysis by the Financial Times that found that in the first three months of 2021. Countries saw their biggest home price booms in two decades.
Sid Bhushan, the economist at Goldman Sachs
Said housing markets in the US, Canada, UK, and New Zealand were “on fire” as “low-interest rates and the shift to working from home are boosting demand for homes”.
Average mortgage rates have more than halved since 2007 in many countries. Including the US, Germany, and the UK, according to separate data collected by Oxford Economics. The low mortgage rates reflect the extremely loose monetary policy being adopted by most advanced economies in response to the impact of the pandemic.
Housing demand is also driven by the trend of working from home. Along with the large savings that many people accumulate when spending limit due to Covid-19.
Bhushan added: “Price is up but housing supply remains tight. Housing inventories are near historic lows in the US, Canada, and the UK. Meanwhile, shortages of materials and labor have hampered construction activity and exacerbated supply shortages.
Experts still don’t know how long the house price boom will continue.
In Asia, Helen Qiao, an economist at Bank of America. Said South Korea’s housing market is “hot” on record because of strong demand and meager supply.
In the UK, the government recently ended tax incentives and caused house prices to drop slightly. However, “the combination of low-interest rates. A strong economic recovery could turn a small-scale housing boom into a real estate bubble.” Said Kallum Pickering – senior economist at the bank.
In the Americas, the number of mortgage applications from Americans is falling. Indicating that demand has cooled compared to before, Everett-Allen said.
Stephen Brown, the senior economist at Capital Economics, said Canada is also seeing a similar downtrend. House price inflation in this country is “nearly peaking”. The number of real estate transactions decreased. The ratio of homes sold to the number of people who applied to buy also decreased. This shows that the Canadian housing market is cooling down and prices may not increase as much as before.
Conclusion
In 2021, global economic growth is forecast to return as vaccinations ramp up and lockdown restrictions are eased. Which should support the housing market.
However, analysts say that the real estate “craze” will continue because the most important thing is that lending interest rates expect to remain low. And looking back in history, periods of weakness in real estate prices usually only trigger when interest rates rise. Bottoming interest rates are the main driver of prices, especially in the US and Europe. As they make borrowing more affordable.
In particular, even with high inflation, policymakers still expect to keep interest rates low to ensure recovery. They may have to change course if prices continue to rise and hold steady at higher levels. But the major central banks have emphasized that they want to keep their economies “hotter” than usual if that will help grow and create jobs.
“Mortgage rates will remain structurally low and support market growth in the near term. ” Said Adam Challis, managing director of research. Strategy at Jones Lang LaSalle across Europe, the Middle East, and Africa.
In other words, the “bubble” of the real estate market may not burst in the near future if the COVID-19 pandemic not completely contain. Normality returns to everyone.
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