Major property markets to experience house price falls in 2023

House prices in most major property markets will fall in 2023, according to nearly 100 housing market analysts, but they predicted double-digit peak-to-trough declines will not come close to making them affordable.

Mortgage rates have doubled on average in developed economies since the start of the year as their central banks fight runaway inflation with higher interest rates.

With a few more hikes still expected to come, that trend was unlikely to reverse in the short-to-medium term.

House prices in the US, Canada, Britain, Germany, Australia and New Zealand rose between 25% and more than 50% since the outbreak of the coronavirus pandemic in early 2020.

That rally, lit by rock-bottom rates and a scramble by millions who shifted to work from home to find more living space, pushed properties further out of reach for many first-time homebuyers.

While most markets are now retreating from highs, there appears to be very little solace for those still dreaming about their own homes.

Among the nine housing markets surveyed, prices in six were expected to drop next year.

Only China’s beleaguered property market, alongside outliers India and Dubai, were forecast to rise, according to the latest Reuters polls.

Dubai property expert Angelos Kazantzas, of Paragon Properties, said the Dubai property market was showing no signs of slowing down.

“As the demand increases, prices climb. And, right now, the demand is only accelerating. Property investors are clamouring for Dubai inventory as a safe bet on profitability and certain growth during uncertain times in most of the world.”

But while house prices in developed economies are expected to fall between 10% and 18% from peak-to-trough, led by New Zealand, those predicted declines would amount to just about one-third of the pandemic era gains.

Buyer’s market?

And while before the pandemic analysts had categorised house prices as fairly valued or only slightly overvalued, now they rate them consistently as moderately expensive in most markets, even as rising borrowing costs and inflation weigh on demand.

“Higher mortgage rates will weigh heavily on demand and home prices through 2023 and into 2024. Cost-of-living increases will also reduce demand as some consumers delay home purchases,” noted analysts at Fitch Ratings, adding there was “significant uncertainty” about how much house prices would fall.

An overwhelming majority of analysts polled by Reuters in the past weeks said house prices need to fall more than they currently expected to make them affordable.

For example, once red-hot US and Canada house prices were expected to fall 12% and 17.5% peak-to-trough, respectively, short of the estimated 20% and 25% drop needed to make them affordable.

Already falling sharply, Australia and New Zealand housing prices were likely to fall further next year, by about 16%-18% from their peaks. But again, that would only partly chip into recent gains.

The last time house prices fell sharply was during the global financial crisis almost 15 years ago, but with most major economies forecast to enter only a shallow recession, a similar crash was unlikely.

A tight labour market, with unemployment rates near historic lows, and low inventory levels are also likely to cushion property prices.

“The transition from a seller’s to a buyer’s market is already under way across most prime residential markets,” noted Kate Everett-Allen, head of international global residential research at Knight Frank.

“But prime prices would need to dip by 30-40% in some cities for prices to return to their pre-pandemic levels of 2019,” she said. “And the consensus view ... is that we aren’t in line for Global Financial Crisis 2.0.” 

Reuters