Here’s how overseas housing markets are faring right now

Here’s how overseas housing markets are faring right now

Falling house prices and soaring mortgage rates are straining household finances and putting pressure on the economy, but other countries are experiencing similar housing problems.

An unprecedented market boom in 2020 and 2021 resulted in frenetic activity and skyrocketing prices, stretching affordability and locking out many potential buyers and struggling with higher rents.

The New Zealand market rose particularly sharply, with prices rising an estimated 42% and hitting a national record price of $925,000 in November 2021. At one point it had the second fastest price growth rate in the world.

But this was a global story and only a few countries were unaffected. International property consultancy Knight Frank said prices in 48% of markets have risen by over 10% annually in 2021, up from 13% before the pandemic.

CONTINUE READING:
* What will the housing market look like in 2023?
* Home sales fall to lowest December level since 1995
* Until then, we can expect property prices to continue falling

It was unsustainable and when the global market started to turn last year, New Zealand led again.

The Reserve Bank began raising official interest rates earlier than other central banks, and the resulting rise in interest rates, combined with new lending rules and investor tax policies, triggered a downturn.

Prices have fallen 15% nationwide since their peak in November 2021, the latest figures from the Real Estate Institute show, while sales are at levels seen during the global financial crisis (GFC).

Further price declines are expected, with forecasts for the peak-to-trough decline ranging from 20% to 25%. This would still leave prices at higher levels than pre-Covid.

Things

Falling house prices are a global story.

New Zealand may have felt it first, but European countries with traditionally considered more stable markets, such as Germany and Sweden, are now struggling with a hangover from their boom.

This is how the downturn is playing out in some countries with comparable markets.

Australia

On the other side of the moat, the Australian market is attracting similar coverage to that of New Zealand, with headlines focused on falling prices.

CoreLogic’s latest home value index showed prices down 5.3% over the year to the end of December. This left the national median at AUD 708,613 (NZ$ 769,935).

This represents the first time since 2018 that national prices have fallen for the calendar year, and the largest fall for the calendar year since 2008, when values ​​in the GFC fell by 6.4%.

The sharpest price declines were in Sydney and Melbourne, down 12.1% and 8.1% to medians of A$1 million and A$752,777 respectively.

Tim Lawless, CoreLogic’s head of research for Asia-Pacific, says prices have fallen sharply after the Reserve Bank of Australia launched its fastest rate-hike cycle on record last May.

Since then, CoreLogic’s national index has fallen 8.2% after readings rose 28.9% during the rebound. But despite the downturn, prices generally remain well above pre-Covid levels, he says.

“Melbourne is the only (state) capital where the current downtrend is erasing nearly all Covid gains, with prices just 1.5% above March 2020 levels.”

Lawless expects further price declines in the early months of this year, followed by a stabilization in prices after peaking in interest rates, which will be a key driver of market outcomes.

Darrian Traynor/Getty Images

Melbourne property prices are just 1.5% above pre-Covid levels.

Michelle Ciesielski, Research Director at Knight Frank Australia, says prices are likely to drop a further 7% by the end of this year, but smaller cities like Adelaide and Hobart will be less affected.

“By the end of 2024, capital growth is expected to gain positive momentum, growing by 5% across Australia. The underlying factors driving this demand will continue to stem from migration and the ongoing chronic undersupply of rental housing.”

United Kingdom

In the UK, prices didn’t rise as much as some other markets, but the country boomed in the Covid years.

Tom Bill, Head of UK Residential Research at Knight Frank, says prices have risen by around 23% following the Covid outbreak, largely due to an imbalance between low supply and high demand.

In the consultancy’s latest index, the UK posted annual growth of 10% for the year to September, but Bill says house prices have plummeted after September’s disastrous mini-budget announcement.

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The UK housing market slowed following the mini-budget announcement last September.

“As inflation continued to rise, interest rates rose and the cost of borrowing rose as a result, putting further pressure on households and driving down mortgage affordability.”

While markets have calmed down now, the future of the housing market will be affected, he says.

“Mortgage rates are catching up and declining only slowly, creating a disorganized picture for the market at the end of 2022, with a variety of motivations prevailing among buyers and sellers.”

Knight Frank research shows prices will fall 10% over the next two years, with a 5% drop this year, Bill says.

Halifax’s latest home price index also shows that the market has turned, with prices falling 1.5% in December and annual growth slowing to 2% at the end of the year. That left the cost of the average UK home at £281,272 (NZ$536,825).

Kim Kinnaird, director of Halifax Mortgages, says uncertainties about the impact of rising living costs along with rising interest rates are causing the market to slow down overall.

“It continues to be impacted by the broader economic environment and as buyers and sellers remain cautious, we expect an overall contraction in both supply and demand, with prices expected to fall by around 8% over the course of the year.”

However, it’s important to recognize that an 8% drop would mean the cost of the average property would return to April 2021 prices, which are still well above pre-pandemic levels, he says.

Canada

Similar to New Zealand, the Canadian market had been running hot for some time before Covid and the low cost of borrowing caused by the pandemic led to a steep upward trend in prices.

Prices rose 31.6% annually through March 2021, figures from the Canadian Real Estate Association (CREA) show, and overall they rose about 50% in 2020-2022, according to Reuters.

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Canada’s benchmark home price is down 13.2% since the market peaked last February.

The Bank of Canada began raising its benchmark interest rate early last year, going from 0.25% to 4.25%, quickly pulling up mortgage rates. Prices peaked in February and have been falling ever since.

New figures from the association show that the country’s benchmark home price fell 1.6% in December and 7.5% annually to CAD730,600 (NZ$846,565). This is down 13.2% from the market peak.

The peak-to-valley decline is the largest since the association began collecting data in 2005, while the annual decline of 7.5% is the largest for a calendar year.

The association’s lead economist, Shaun Cathcart, says the housing market story of 2022 was about high inflation and rising interest rates.

“The 2023 market will depend on the timing and extent to which these factors move back in the other direction, but housing demand continues to grow and supply remains the biggest problem across the spectrum.”

But Phil Soper, chief executive of Canadian real estate agency Royal LePage, says while the volume of home trading has fallen sharply, prices have held up, with relatively modest declines.

This will be an ongoing trend as low unemployment means few families are likely to have to sell their homes for financial reasons, and Canada continues to face an acute housing shortage, he says.

“The first quarters of 2023 should show the sharpest decline in prices, but year-on-year comparisons will show progressively smaller declines, with small improvements in the third and fourth quarters, allowing prices to end the year essentially flat at today’s levels. ”

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