In the wake of the pandemic, global real estate markets experienced an unprecedented boom, fueled by pandemic-related rate cuts. However, recent data from the Bank of International Settlements (BIS) paints a different picture, revealing a downturn that is particularly pronounced in advanced economies. Let’s delve into the factors contributing to this decline and the contrasting situations in emerging markets.
The Global Decline
According to BIS data, the second quarter of 2023 witnessed negative real home price growth in most markets worldwide. Notably, advanced economies, which once led the surge in prices post-rate cuts, are now grappling with significant declines. Around 80% of advanced economies recorded year-over-year drops in home prices during this period, a stark contrast to the 60% observed in emerging market economies.
The Persistence of Declines
Advanced economies not only experience more profound price drops but also struggle with a slower recovery compared to their emerging market counterparts. The year-over-year growth in the aggregate of advanced economies plummeted by 4.7% in Q2, more than nine times the decline observed in emerging markets. This trend suggests that the current downturn might be a correction in response to the excessive home price growth witnessed after the 2020 rate cuts.
G20 Countries: Winners and Losers
The impact of this real estate downturn is not uniform across G20 countries. Hungary, with a staggering annual drop of 15.6%, leads the list of nations facing the most significant decline in home prices. Germany (-15.5%) and Sweden (-15.2%) closely follow suit. Canada, while experiencing a notable 11.7% annual decline in Q2, is comparatively more resilient.
However, not all G20 countries are witnessing a fall in real estate prices. Turkey emerges as a surprising leader with an impressive 39.5% annual growth, followed by the UAE (+12.9%) and Greece (+11.2%), despite grappling with inflation issues.
The Aftermath of Low Rates
The boom in global real estate prices since the pandemic was largely attributed to central banks keeping interest rates at historically low levels. This extended period of low rates contributed to the inflation crisis. Now, as central banks raise rates to combat inflation, the real estate markets are undergoing a correction.
The current downturn in global real estate prices marks a shift from the exuberance witnessed in the post-pandemic period. Advanced economies, having experienced a more significant surge, are now facing a challenging correction. As central banks work to balance inflation, the real estate markets still have a long way to go before achieving equilibrium. The global real estate landscape is evolving, presenting both challenges and opportunities for investors, homeowners, and policymakers alike.