Ross Finley and Hari Kishan

BENGALURU/LONDON – The property market frenzy which erupted during the pandemic when people tried to purchase more space, is now likely to end as interest rates rise. This will lead to a drop in house prices, according to Reuters market surveys.

Analysts covering nine major global property markets believe that the era of massive price rises, some as high as 50%, may soon be over. Some countries will see small falls by 2023.

However, they warn that any housing price drops won’t increase affordability, especially for first-time homeowners. This is because the cost of basic living rises, and the mortgage rates go up, which will be the first time this has happened in many people’s lives.

“There’s definitely a slowdown. “The pace of growth has slowed pretty much all over the world… and it’s likely that some markets will experience price drops,” stated Liam Bailey (global head of research, Knight Frank).

“The real question is whether or not there’s a chance of certain markets experiencing a type of crash.”

Real estate experts aren’t anticipating a correction of even 10% in house prices. Instead, they believe that inflation in housing will be substantially lower than what is currently occurring in consumer prices.

Analysts are unanimous in their concern about how record-breaking house prices will impact affordability and the rise of interest rates, with wages not likely to keep pace with inflation.

More than two thirds of the analysts (83 out of 119) who responded to an additional question stated that affordability would be either better or worsening over the next two year. It would increase, according to 36 of the remaining analysts.

Analysts agree that affordability will continue to decline even though there are property markets such as India and Dubai which did not experience panic buying or double-digit increases in annual prices like in the United States and Canada.

Graphic: Reuters Polls- Global housing market – https://fingfx.thomsonreuters.com/gfx/polling/klpykolwnpg/Reuters%20Polls-%20Global%20housing%20market.png

CHALLENGES WITH INFLATION

This is partly due to the fact that new homes are expensive and not being built quickly enough to satisfy demand.

Supply chain disruptions that have caused high costs for businesses all over the globe are expected to increase and be passed on as a cost to buyers first time. This is similar to how consumers now pay more to buy everything.

Adam Challis (executive director, research and strategy, EMEA, JLL) stated, “The same inflation issues… especially in the building market and supply chains woes that continue to plague… developers and builders… aren’t being mitigated to any degree.”

In fact, the situation is likely to worsen in the short-term as more people move back to the city… and are excited about the urban lifestyle choices they make.

Although analysts can’t predict consumer behavior, they are often unable to forecast the future. However, the desire to leave COVID-19 lockdowns and move was what drove people to bid for properties. That was what few could have guessed.

There is little to no reason to believe that homeowners with large amounts of home equity and high prices could be more reluctant to act on the desire to live in cities again.

This leaves those first-time purchasers, who may have had to come up with the deposit needed for a property, in an even worse position every year. Even if property prices decline, this may still be the case.

Knight Frank’s Bailey stated that although the purchase price might be lower, servicing loans may still cost more.

Large numbers of people across the globe, including young ones, prefer renting to owning property. Rents have risen everywhere because of a shortage in homes.

More than 80% (82%) of the 99 analysts were asked to predict what would happen in the housing market’s affordability over the next 2 years. Rest of the analysts said that it would increase.

(For more stories about the Reuters quarterly housing market polls, click here: