Research Briefing | Jan 18, 2023

More pain likely for global housing markets

House prices have fallen rapidly in several economies over recent months and more pain looks likely in 2023. The speed of these declines is comparable to the worst period of the global financial crisis, begging the question of whether we are heading for a similar nasty global housing bust.

What you will learn:

  • The historic evidence on housing boom-bust cycles is not encouraging. Since 2012, world house prices have risen by around 40% in real terms – faster even than the rises seen before the global financial crisis. But in the past three cycles around 50% of global real house price gains were reversed in the subsequent slumps, and for individual economies the retracement was often much higher at 70%-100%.
  • Several factors are thought likely to prevent a steep dive in house prices this time, such as better lending standards during the upturn, a lower level of transactions near the market peak, low inventory of homes for sale, and stronger labour markets.
  • Some measures do suggest lending standards in economies like the US and UK have improved. However, leverage is often still high, suggesting major affordability issues as rates rise. In addition, there is evidence of risky lending in parts of Europe, Canada, and Australia. While equity cushions for homeowners may look large, they could evaporate quickly as prices drop.
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