Are we headed for a global housing market crash? That’s the question on everybody’s minds as real estate prices start to dip worldwide.
It’s true that prices are down by 15% from their peak in Sweden and could drop by 25% in Germany. Even the seemingly unshakable Hong Kong property market is starting to show signs of weakness.
So, could this be the start of another global housing crash? Well, it depends. The 2007 housing crash was caused by a real estate bubble when prices were far higher than their actual value.
This time around, it’s a little different. We’re in the midst of an economic recession brought on by the pandemic, as well as rising inflation and shrinking household budgets. This has led to higher interest rates from central banks around the world.
In the US, the average interest rate for a 30-year mortgage has now reached 6.8%.
However, not all markets are feeling the pinch. For example, in France, the national interest rate for a loan longer than one year is still capped at 1.58% due to a legal limit.
What’s more, several factors could help stabilize the market, such as high-interest rates and rising land costs that keep the amount of construction down, meaning there’s less living space and, therefore, more demand.
And, of course, there’s the diversity of the world market – no two markets are the same, and some remain stable and offer fair-value prices.
Furthermore, there’s a lot of capital circulating in the market. According to figures from the third quarter of 2022, cross-border real estate transactions around the world totaled over 62 billion US dollars.
Transaction volumes are also increasing in many countries, despite the economic aftermath of the pandemic.
Ultimately, the likelihood of borrowers defaulting on their mortgages is generally low, thanks to the stringent lending practices implemented by financial institutions since the 2008 crisis.
So, to answer the original question: no, we’re not headed for a global housing market crash. Sure, prices are down, but this is just part of the cycle.
With so many factors working to stabilize the market, we’re more likely to see a re-correction over time. In short, real estate remains a solid and stable asset class.
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