Over the last few years, housing prices globally have experienced steady growth, with most of the developed economies seeing on average 5-7% appreciation in value.
But, with rising interest rates stemming from historic inflation over the last 12 months, home sales cooled as demand for new mortgages fell while buyers waited out the storm. As the new year begins, the trend looks to be continuing – at least in the short term.
Grim Possibilities
Rising housing prices have caused some concern among economists and policymakers, as they worry that another real estate market crash could occur.
Experts say there are a number of factors that could contribute to a global housing market crash in 2023 – additional prolonged rises in interest rates, a possible recession leading to a decline in housing prices, and corporate layoffs that would slash the pockets of potential buyers.
The increase in housing prices in recent years has also contributed to rising levels of debt and speculation, and experts warn that if it were to collapse, it could trigger a financial crisis similar to the one we saw in 2008.
Mixed News for the U.S.
According to analysts, the outlook for the American housing market in 2023 is mixed. Home prices are expected to rise between 2.8% and 4%, according to CoreLogic and Home LLC respectively.
However, Amherst predicts that home prices will fall 5% between September 2022 and September 2023, while Zelman & Associates forecasted a 4% drop in 2023 and another 5% in 2024. Fannie Mae economists predict that U.S. home prices will fall by 1.5%.
The nation’s overall housing supply remains limited due to previously low mortgage rates, which helped fuel the frenzied market of the last few years.
On the flip side, some experts predict that inventory will increase throughout the coming year as homes become more unaffordable due to higher rates. Mortgage rates are expected to remain above the 5.5-6% range for most of the year according to a recent forecast from Knight Frank.
If mortgage rates remain high or escalate even higher, it would be more difficult for potential buyers to purchase a home.
Despite this, some experts remain hopeful that home shoppers have reason to be optimistic – overall, most pros agree that the American housing market in 2023 will be characterized by uncertainty, which gives at least some hope for a good outcome.
Uncertainty Persists in the U.K.
The outlook for the U.K. housing market is also uncertain, with experts predicting a sharp slowdown due to the ongoing recession and higher mortgage rates.
Major property market forecasts predict that house prices will fall by 8-10% during 2023, with some analysts predicting a drop of up to 12%. Mortgage lender Halifax has forecast a decrease in house prices of 8%, while Savills U.K. believes house prices will drop by 10%.
Lloyds Bank and Halifax both expect house prices to fall by 8%, while Nationwide and online estate agent Zoopla are predicting falls of 5%.
The cost of living is also expected to be a major concern for landlords this year, with 40% citing it as their biggest worry over the next 12 months.
Despite all of this, some analysts believe that the housing market could heat up later in the year, with Trading Economics suggesting that property prices could rise overall.
A Reset of the European Real Estate Market?
The outlook for the European housing market is just as varied, as a decline in house prices is expected in many countries due to rapidly rising mortgage rates, which will likely have an impact on both housing prices and investment.
In Denmark, for example, home prices are forecast to fall by 10-7% in 2023, the largest decline in Europe and joint-largest globally (with Australia).
However, there are also some positive factors that could support demand for European real estate, such as strong household balance sheets and continued overall wage growth.
This is particularly true in major cities such as London, Paris, and Berlin, where population growth and a growing economy are driving the market.
Demand for housing is also likely to remain strong due to population growth and a growing economy, as well as increasing levels of foreign investment.
Additionally, many global expat investors are looking to invest in properties in major European cities as a way to diversify their portfolios and generate higher returns.
Although high inflation continues, it appears to have peaked in Q4 2022 so that would mean some good news for interest rates. Yields have already increased by 50-75 basis points across Europe, and this could be an attractive opportunity for property investors in the 12 months.
Modest Growth but Some Declines Globally
The outlook for global housing prices is relatively mixed, with some countries seeing modest price growth and others experiencing declines.
Despite some growth in economically developed regions, many emerging markets – like Brazil and Mexico – prices are forecast to decline as economic conditions continue to deteriorate.
In Asia, the outlook for the housing market is quite varied. Some countries are expected to see strong growth in the housing market, while other countries may face slower growth due to economic uncertainty.
Driven by factors such as urbanization and a growing middle class, China, India, and Japan are expected to see particularly strong growth, as they continue to experience rapid economic development.
The Bottom Line
Overall, analysts predict global housing prices are expected to rise modestly by an average of 2-3% annually throughout 2023.
This is down from the 5-7% growth rates seen in recent years, as a result of slower economic growth and tighter lending standards. Nevertheless, there remain opportunities for investors who can identify promising markets and correctly assess risk/return prospects.
No matter where you look, the one consistency appears to be inconsistency, as fluctuating economic conditions muddy the predictive waters and make it harder for economists to read the tea leaves about what exactly lies ahead.
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The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up to date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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