Source: The Guardian —
Across the world house prices are breaking records – but this time it is because of how fast they are falling. Houses in Stockholm are now selling for 20% less than their peak, Sydney prices are down by almost 14% over the year, while in San Francisco they are down by 15%, in Auckland by almost 22% and in Toronto by 16%.
Germany has registered its biggest six-month price fall for two decades, while in France forecasters are expecting declines of 5% to 7% this year, and after a strong year in Spain, the first price declines are being reported in Mallorca and Ibiza.
Meanwhile, maybe spare a thought for some homeowners in the South Korean capital of Seoul, where apartment prices are reportedly down by 24% since October 2021.
The UK’s house price falls to date – down by 4.2% or 3.2% since their peak in August last year, according to the Halifax and Nationwide respectively – look relatively mild in comparison with some of those locations.
So what is behind the global mini crash, and are there lessons we can learn from what is happening in other countries?
At its simplest, it’s about the cost of money. The long era of near-zero interest rates, which made borrowing to buy a home cheaper than at almost any time in history, is over, for now at least.
The Bank of England has raised rates from 0.1% in late 2021 to 4% today – with a corresponding rise in mortgage rates. Meanwhile, US average long-term mortgage rates are now above 6%. A year ago they were below 4%.
In the UK millions of borrowers are on fixed-rate deals that are still protecting them from sharp increases in their monthly mortgage costs. That’s very different to a country such as Sweden, where most households have variable-rate mortgages that go up in line with changes in interest rates.
As many economists point out, the house price falls follow eye-watering rises in some cities and some types of properties, and values are often only coming back to where they were a couple of years ago. Almost no one is predicting a full-scale property crash.
Some of the price falls are the unwinding of the “race for space” that was a global phenomenon during the coronavirus pandemic. Demand for larger individual houses jumped as people worked from home, leaving apartments in the cold. But over the past year the price of houses has generally fallen more than apartments.
However, even during a worldwide slump, there are always places that boom. Prices of luxury properties in Dubai – a refuge for Russian oligarchs barred in the west – soared by an astonishing 89% in 2022, according to the estate agent Knight Frank.
Sweden
Europe’s fastest falling market
What the data says: apartments down 11% in the 12 months to December 2022, houses down 13.7%. (Source: HOX Valueguard). Stockholm houses down 19.8% peak to trough, apartments down 11.6% (source: SBAB.se)
Sweden, the European country with the biggest house price falls so far, has suffered some fairly brutal rate increases – and with most households on variable rates, the impact has been immediate.
Robert Boije, the chief economist at the Swedish mortgage lender SBAB, says: “One reason why housing prices have been falling more in Sweden than in most other EU countries is that we, to a large extent, have loans with floating and not fixed interest rates. This means that when central banks are increasing their key interest rates, it will pass through on mortgages with a faster pace in Sweden than in many other countries. Just a couple of years ago the floating mortgage rate in Sweden was as low as about 1% (when the Riksbank key interest rate was minus 0.5%). Now it is about 4.5%.”
The London-based consultancy Capital Economics says: “Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here.”
At Valueguard, which produces Sweden’s most widely used index, the chief executive, Henrik Åkerblom, says: “Swedish society had become accustomed to very low interest rates. Younger people had never seen high interest rates.”
Russia’s invasion of Ukraine (Sweden is a nearish neighbour across the Baltic) was also a hammer blow to confidence.
