Global house prices rise at fastest pace since 2005, report says

Property sector updates

Global house prices rose are rising at their fastest pace since 2005 as low interest rates, a shortage of housing and bountiful household savings continue to boost the housing market.

The average annual price change across 55 countries rose to 9.2 per cent in the 12 months to June, according to property consultancy Knight Frank. It is the fastest rise since the 12 months to March 2005, and is up from 4.3 per cent over the same period last year as more countries’ property markets heat up.

Overall, one in three countries registered double-digit price growth, including Russia and Germany. The US, Australia, New Zealand, Turkey and Canada registered nominal house price growth of more than 16 per cent, Knight Frank data showed.

Column chart of 12-months to end of quarter, annual % change showing Global house prices grow at the fastest pace since 2005

“The pandemic-induced housing boom continues,” said Kate Everett-Allen, head of international residential research at Knight Frank. However, “this is a story largely confined to advanced economies where support measures have protected jobs and enabled significant savings”.

Average house price growth was more than twice as high in advanced economies than in developing countries, according to Knight Frank. India and Spain were the only countries that registered a decline.

The findings are in line with an FT analysis which earlier in the summer revealed that in the first three months of 2021, countries experienced the broadest real house price boom in two decades.

Sid Bhushan, economist at Goldman Sachs, said housing markets in the US, Canada, the UK, and New Zealand “are on fire” as “low interest rates and the shift to working from home are fuelling housing demand”.

Average mortgage rates have more than halved since 2007 for many countries, including the US, Germany and the UK, according to separate data collected by Oxford Economics. The low mortgages rates reflect the ultra-loose monetary policies adopted by most advanced economies as they responded to the hit to the economy caused by the pandemic.

Housing demand has also been supported by increased homeworking, with purchases further helped thanks to large savings accumulated by many during the pandemic, when spending was limited by Covid-19 restrictions.

“One under-appreciated reason for the price boom is that housing supply is very tight,” Bhushan added. Housing inventories remain near historic lows in the US, Canada and the UK, while shortages of building materials and labour have hampered construction, “exacerbating the housing shortage”.

It remains unclear how much longer the house price boom will continue.

In Asia, Helen Qiao, economist at Bank of America, said Korea’s housing market is “running hot” by historical standards because of strong demand and low supply.

In the UK, the recent withdrawal of government tax incentives has caused some softening in the market. Nevertheless, a “combination of cheap money and a strong economic recovery could turn the housing mini boom into a genuine bubble”, Kallum Pickering, senior economist at the bank Berenberg, said.

As for the Americas, a dip in US mortgage applications suggests softening demand, Everett-Allen said.

The same may be true in Canada, suggested Stephen Brown, senior economist at Capital Economics, who said the country’s house price inflation is “close to a peak”. A falling number of properties sold and a decline in the sales-to-new listings ratio “no longer points to a further acceleration in house price growth”, he said.


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