Prices are falling in some places, raising the risk of market routs and adding to central banks’ challenges.
5 min
Rising interest rates are slamming the brakes on a global housing boom during the pandemic, heaping extra pressure on central banks as they try to tame inflation without triggering deep downturns in their economies.
From Europe to Asia to Latin America, residential real-estate markets are coming off the boil, and in some cases seeing home values spring, as central banks jack up borrowing costs to bring consumer-price growth to heel.
The seasonally adjusted average home price in Canada was down nearly 8% in June from a peak earlier this year. In New Zealand, prices had slipped 8% in June from their peak in late 2021. Prices in Sweden in May fell 1.6% from the previous month, the biggest monthly decline since the pandemic began.
For the world’s central banks, skimming froth from bubbly housing markets is all part of the battle to bring inflation under control. Falling house prices usually result in weaker consumer spending as homeowners see wealth evaporate, easing upward pressure on inflation. Overall economic activity should slow as construction dwindles, banks issue fewer loans and real-estate agents make fewer sales.
“We are expecting to see some moderation in housing activity. And frankly, that would be healthy, because the economy is overheating,” Tiff Macklem, governor of the Bank of Canada, said last month.
The risk, economists say, is that central banks move too aggressively, causing a global housing-market slowdown that turns into a rout, with unpredictable effects.
Countries including Canada, New Zealand, Australia and Sweden look especially vulnerable, based on metrics such as real-estate’s share of their economies, the extent of their recent booms and homeowners’ sensitivity to rapid interest-rate increases, some economists say.
Analysts say the risk of a housing blowup of the scale of the 2008-09 financial crisis is remote. Banks and borrowers are mostly in far better financial shape now.
Still, a bigger-than-expected housing downturn could mean a deeper economic slowdown than central banks are aiming for to tame inflation.
A shrinking real-estate sector means laid-off construction workers and weaker demand for steel and other commodities. Falling home prices also hurt household and bank balance sheets, which tends to weigh on other parts of the economy. In extreme cases, financial distress ensues.
Faced with those risks, some central banks may decide they can’t lift rates as much as investors currently expect. Others may even pause or reverse rate rises to prevent a real-estate bust from spreading.
“Moderate housing downturns will be tolerated as a price that has to be paid for getting inflation back down,” said Neil Shearing, chief economist at Capital Economics in London. More severe downturns, though, could trouble central banks enough to shift policy, he said.
The U.S. is still experiencing strong house-price growth despite higher mortgage rates, as fierce competition outstrips limited supply. Average home prices in the U.S. rose by an annual 20.4% in April, according to the S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas.
Federal Reserve officials have expressed determination to bring U.S. inflation down, even at the risk of causing a recession.
Global housing prices took off in 2020 and 2021, when central banks slashed interest rates and governments spent big on keeping companies and workers afloat during the pandemic.
An index of global house prices compiled by real-estate consulting firm Knight Frank shows that prices rose 19% worldwide between the first quarter of 2020 and the first quarter of this year, or 10% after adjusting for inflation, though some markets logged much stronger appreciation.
Inflation-adjusted price growth slowed to 3.9% globally in the first three months of 2022 from a year earlier, the index showed. Over the same period, house prices fell in real terms in countries including Brazil, Chile, Spain, Finland, South Africa and India, Knight Frank research shows.
The slowdown coincides with tighter interest-rate policy across much of the world and expectations of more to come.
After earlier rate rises this year, the Bank of Canada last Wednesday raised its policy rate by a full percentage point to 2.50% and said further rate increases are necessary. Gov. Macklem has said cooling housing is essential to push inflation down from a 39-year high of 7.7% in May.
With Canada mortgage rates at their highest level since 2009, house sales in June were down 24% from a year earlier, according to the Canadian Real Estate Association.
Real-estate brokerage Realosophy said Toronto sales declined 40% in May from a year earlier and now sit at a 20-year low. The median price for a Toronto home, excluding condominiums, is down nearly 20% from a February peak.
Daniel Foch, a real-estate agent who focuses on Toronto’s suburbs, said the mood among would-be buyers is “somewhat bittersweet, because a lot of them are seeing prices come down and they’re thinking, ‘all of sudden I can afford that house.’”
The problem, Mr. Foch said, is when they seek financing. “They realize their buying power has been reduced by the same amount.”
Economists are marking down their expectations for Canada’s economy as housing, which accounted for about one-fifth of the growth in gross domestic product last year, slows.
The Bank for International Settlements, which brings together many of the world’s top central banks, said in June that it could take a while for countries such as the U.S., where most mortgages have fixed rates, to feel the effect of higher rates.
But the same isn’t true for countries where floating-rate mortgages—which adjust as interest rates rise—are more common, as they are in parts of Europe and elsewhere, according to BIS data. In Australia, 85% of mortgages are floating rate. In Poland, the share is 98%.
The Reserve Bank of Australia is currently raising interest at the fastest pace in nearly three decades. Some retreat in house prices would ease affordability problems, but economists say any hint of a coming market collapse would quickly see the RBA stop tightening policy screws.
Overstretched borrowers are a particular concern.
“These are people who have taken out their first housing loan in the last year or so or who have bought a bigger house in the past couple of years and have borrowed as much as the bank would lend them,” RBA Gov. Philip Lowe said in a recent speech.
Economists say there are some grounds for optimism over housing. The price run-up was driven primarily by rock-bottom rates and evolving consumer preferences for more space, not the loosened lending standards or excessive risk-taking that culminated in the 2008-09 crisis. Supply of homes is tight.
Healthy labor markets and pandemic stimulus programs mean many households are in decent financial shape, though inflation is eating into incomes.
“As long as the unemployment rate stays low, interest rates should be manageable for the vast majority of households,” said Sharon Zollner, ANZ Bank’s New Zealand chief economist. “You won’t have a lot of sellers who have to just take whatever the offer is on the day.”
The impact of slowing markets will still be felt, however.
In New Zealand, where home prices rose 45% over 2020 and 2021, the median house price in June was down by about 8% from its November 2021 high of 925,000 New Zealand dollars, equivalent to about $565,500.
The reversal came after New Zealand’s central bank began raising its benchmark interest rate in October, and lenders tightened borrowing standards.
Asif Abbas Mehdi, a business owner in New Zealand’s Waikato dairy-farming region, said he has been trying to sell a three-bedroom, two bathroom townhouse for four months.
Initially he sought NZ$730,000, or about $450,000, then NZ$680,000, or about $419,000. He is reluctant to go lower than that.
“If nothing happens at 680,000, I might have to pull it off the market,” Mr. Mehdi said.
Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: July 18,2022
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The US housing market remains under pressure as high mortgage rates continue to weigh on affordability and demand. Industry leaders say 2026 has been one of the toughest years for home sales, with slower price growth, weaker mortgage activity, and fewer buyers entering the market. However, experts say reduced competition and more price cuts could create opportunities for well-prepared buyers.
2 min
The typically busy spring season for the housing market was a dud, and the summer isn’t looking much brighter.
Housing services companies like Zillow Group and Rocket RKT +3.78% were loud and clear last week on earnings calls: Rocket CEO Varun Krishna called the quarter through June “one of the toughest spring housing markets in years.”
Jeremy Hofmann, Zillow’s chief financial officer, said on a conference call that the company predicted earlier this year that the market for mortgages would be flat. “We actually now think it’s going to be down low-to-mid-single digits,” he said.
The rest of 2026 will remain challenging for mortgage origination volume, says KBW analyst Bose George. The question now is what happens in 2027. “If mortgage rates remain [around] 6.75%, I think that’s going to be challenging even for next year,” he says.
But what’s bad news for mortgage companies could be a positive for bargain hunters. Buyers can expect prices to grow more slowly—or mildly decline—with less competition as long as mortgage rates remain unpredictable.
Mortgage rates at the beginning of the year were solidly below year-ago levels, notes Zillow senior economist Kara Ng. But they surpassed last year’s levels recently, she adds, referencing Freddie Mac’s weekly survey of 30-year fixed mortgage rates. Last week’s reading, at 6.69%, was higher than year-ago levels for the first time in 2026.
“From the affordability point of view, it’s going to get more challenging in the second half of the year,” she says. “And when affordability gets more challenging, that impacts sales and home price appreciation.”
Mortgage application data tracked by the Mortgage Bankers Association has cooled since the beginning of the year. The trade group expects that the number of mortgage originations in the remaining two quarters will lag behind last year’s levels, after exceeding 2025 levels in the first half.
Rocket’s early-stage data—which the company told Barron’s it derives from its brokerage Redfin, demand for its mortgage products, and signs in its servicing portfolio that a homeowner is preparing to refinance or move—“leads us to expect the third quarter mortgage market to be smaller than the second,” Chief Financial Officer Brian Brown, said on the company’s call. He added that such an occurrence is “something the industry has not seen since 2022.”
Prices will be about flat nationally, Ng says. Zillow’s most recent forecast, which shows how values are expected to change in the year ending June 2027, show them dropping in roughly half of the 100 largest U.S. metros for which data is available.
Buyers aren’t rushing in at a time when mortgage costs are rising and unpredictable. But those with the right combination of patience and cash could stand to benefit. “If you are financially qualified to buy a starter home, you are facing less competition and you’re more likely to get a price cut,” Ng says.
