Some property markets fell as global frenzy abates – Reuters poll

BENGALURU/LONDON, June 1 (Reuters) – The frenzy in the global housing market, which gathered momentum during the pandemic as people scramble to buy more homes, is likely to end as interest rates rise and house price inflation is expected to rise will decline, according to Reuters surveys by market experts.

Huge price increases of up to 50% in recent years could be coming to an end, leading to slight declines in some countries in 2023, according to analysts covering nine major world property markets.

But they also say a drop won’t make housing more affordable, particularly for first-time buyers, just as basic living expenses are skyrocketing and mortgage rates are rising — for the first time in many young people’s lives.

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“There is definitely a slowdown. So the pace of growth is slowing pretty much everywhere… (and) it’s likely that a number of markets will see price declines,” said Liam Bailey, global research director at Knight Frank.

“The question really is whether there is some sort of crash scenario looming in certain markets.”

Currently, most real estate experts are not forecasting even a 10% correction in house prices, sticking to the view that house inflation will slow significantly, in most cases to less than the rate at which consumer prices are currently rising.

With wages unlikely to follow any of these inflationary trends for the foreseeable future, analysts are extremely unanimous that fundamental affordability will be hampered by record high house prices and higher interest rates over the next few years.

A majority of more than two-thirds of the analysts, or 83 out of 119 who answered an additional question, said affordability for first-time buyers would either deteriorate or deteriorate significantly over the next two years. The remaining 36 said it was improving.

Even in real estate markets like India and Dubai — which have avoided panic buying and high double-digit annual price increases during the worst of the pandemic in markets like the United States, Canada and Australia — analysts still agree affordability will deteriorate. NZ/HOUSES

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INFLATION CHALLENGES

Part of this has to do with the cost of building new homes, which almost everywhere are not being built fast enough to keep up with demand.

The rising costs of supply chain disruptions that all businesses around the world face are being passed on to first-time buyers, much like consumers are paying more for everything they buy.

“The same inflationary challenges…particularly in the construction market and the supply chain issues that continue to plague…developers and builders…are in no way alleviated,” said Adam Challis, JLL’s executive director of research and strategy for EMEA .

“In fact, in the short term, it’s very likely to get worse once people have returned to cities… and become much more enthusiastic about their urban life choices.”

While analysts are generally reluctant to predict the thinking behind consumer behavior, it was people’s urge to relocate while impacted by the COVID-19 lockdowns that prompted them to bid on properties. Few expected that.

Looking ahead, there seems little reason to believe that existing homeowners, empowered by rising home prices, will be much more reluctant to return to city life.

As a result, first-time buyers who have been in a difficult position to pay a down payment on a property for almost a generation are finding themselves in a worse position every year. This can also apply when prices fall.

“Your purchase price may be reduced…but the actual cost of servicing a loan may not go down with that price,” added Knight Frank’s Bailey.

In most countries, many people, especially young people, have reconciled themselves to renting rather than owning. But the housing shortage has also pushed up rents everywhere.

When asked what would happen to affordability in the rental housing market over the next two years, more than 80% of analysts, or 82 out of 99, said it would get worse. The rest said it would improve.

(For other stories from Reuters Quarterly Housing Market Surveys:)

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Reporting by Hari Kishan; Additional reports and surveys by Jonathan Cable, Shrutee Sarkar, Indradip Ghosh, Prerana Bhat, Vijayalakshmi Srinivasan, Milounee Purohit, Vivek Mishra, Arsh Mogre, Anant Chandak, Md Manzer Hussain and Susobhan Sarkar; Adaptation by David Holmes

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