A Global Shift Towards Lower Rates

The global housing market is on the cusp of change. As central banks across the globe prepare to reduce interest rates, experts are analyzing the potential impact on housing prices. While the US Federal Reserve is expected to begin cutting rates at its September meeting, most central banks have already initiated this move or are anticipated to do so in the coming months.

This shift towards lower rates has the potential to stimulate a slight increase in housing prices, particularly in developed countries. The reason for this trend is a persistent scarcity of affordable housing, making it challenging for new buyers to enter the market.

A Balancing Act: Supply and Demand

An in-depth survey conducted by Reuters, involving nearly 150 real estate analysts spanning key markets like the US, UK, Germany, Canada, Australia, New Zealand, China, Dubai, and India, paints a clear picture of the current state of the market. The study reveals that average house prices are projected to rise both this year and next across most of these markets.

Despite the anticipated easing of central bank policies, the anticipated price increases are relatively modest. While median forecasts suggest average house price growth varies from a slight decline of 1.4% to a rise of approximately 8%, the overall outlook is positive. Over the past three months, analysts have revised their forecasts upwards for five out of the nine housing markets under scrutiny.

Global Housing Market Outlook

• United States: Average house prices are projected to climb by 5.4% in 2024, followed by increases of 3.3% and 3.4% in the subsequent two years. This anticipated price surge can largely be attributed to homeowners holding onto their homes with low 30-year fixed mortgage rates, often below 5% and even reaching 3%. They are hesitant to relinquish these advantageous terms.

• Australia: Average house prices are expected to rise by more than 6% this year, surpassing the pandemic peak due to ongoing supply constraints.

• New Zealand: Average house prices, which surged by over 40% during the pandemic, are projected to see a modest increase of only 1% in the coming year.

• India: Demand for luxury properties fueled by affluent buyers with substantial liquidity is expected to drive housing prices upward over the next two years. While the demand stems from a relatively small population of wealthy individuals within India's vast population, it constitutes a sizeable market, enough to push average house prices up by around 8% this year and 6% next year.

• Germany: Following a 7.2% dip in housing prices last year, the German market is anticipated to stabilize in the coming months, with a projected decline of 1.4% this year, followed by a 2% rebound in 2025.

The Affordability Challenge: A Global Issue

While lower interest rates may provide some relief for buyers, the housing affordability crisis remains a pressing concern across the globe. Experts emphasize that this challenge is expected to persist in the short to medium term.

"A growing segment of the population in nations like the US, Canada, Britain, France, Germany, Australia, and Japan will rely on income-based housing models to meet their housing needs," says Matthew McAuley, JLL's director of research for global real estate sectors.

The lack of affordable housing options is a driving force behind the increasing number of renters. Despite the potential benefits of lower interest rates, many prospective buyers are likely to remain renters, facing escalating rental costs.

Renters Facing a Growing Burden

Experts predict that urban rental prices will outpace consumer price inflation over the next 12 months across all the surveyed countries. This trend stems from a confluence of factors, including limited housing inventory and an escalating pool of potential buyers.

"In a higher interest rate environment, prime rents continue to outpace capital values... Low levels of stock in many locations, and a rise in the number of potential buyers, are driving the trend across many prime rental markets," notes Justin Marking, global head of residential at Savills.

A Look Ahead: A Balancing Act

While the prospect of lower interest rates offers a glimmer of hope, it's crucial to acknowledge the multifaceted nature of the global housing market. Supply constraints, affordability challenges, and rising rental costs present ongoing obstacles. As central banks navigate the complex landscape of monetary policy, the housing market's future remains a delicate balancing act.

The Future of Housing: More Than Just Rates

The global housing market is more than just a reflection of interest rate fluctuations. It's a complex interplay of economic forces, demographic trends, and government policies. Understanding these underlying factors is crucial for comprehending the market's trajectory and formulating effective solutions.

While lower interest rates can offer some relief for buyers, the broader context of housing affordability, supply constraints, and evolving rental markets needs to be considered. The path forward demands a multifaceted approach, encompassing innovative housing solutions, policy adjustments, and a focus on long-term sustainability.