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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Georgetown agent Jamie Peva blends history and real estate on Instagram, turning local stories into a powerful sales strategy.
5 min
On a recent morning in Georgetown—Washington, D.C.’s oldest neighborhood—real-estate agent Jamie Peva strode down leafy N Street, brimming with historical tidbits.
Jackie Kennedy once lived on the street, he said. So did Ben Bradlee, former executive editor of the Washington Post, along with a former Miss America and a powerful U.S. Senator. Bradlee’s widow, author Sally Quinn, and Eric Schmidt, former CEO of Google, own stately homes there.
“I’ve seen a picture of Lyndon Johnson coming out of this house,” said Peva, passing a Federal-style brick mansion. “Also, the Beatles went to a lawn party here.”
Peva, a 60-year-old agent with Washington Fine Properties, has sold Georgetown real estate for over three decades, often traversing the neighborhood by bicycle. Of the roughly 2,500 houses in the historic neighborhood, he has been involved in the sale of 460, he estimated. A self-styled historian of the neighborhood, he knows stories behind its houses and their owners going back generations.
With a knack for lively storytelling, he shares his knowledge with some 37,500 Instagram followers, who have made Peva—sporting the bow ties he has worn since boarding school—an unlikely social-media influencer. Many of his followers are locals, and most have no plans to buy or sell real estate—until they do. It is then, according to Peva, that his spirited reels bring him to mind.
“It’s the digital version of a refrigerator magnet,” he said.
After Peva’s first video in November 2023, his eponymous Instagram account sparked a 10% increase in sales volume in the first year, and another 20% the next, he estimated. “It’s been very good for business, there is no question about it,” he said.
But Peva’s posts have also made him a local celebrity. As he walked down N street, the driver of a Mercedes station wagon slowed down to honk and wave. A lady walking a large dark gray dog stopped to ask what he was filming that day (a reel about a Colonial-era bottling plant.) Peva knew the dog from walking his two springers, Jumpy and Peggy-O, in the neighborhood.
“I need to make a video about the pooches of Georgetown,” he mused.
A growing number of real-estate agents now use social media to sell, and some have millions of followers with reels featuring ultraluxury pads, selling tips or reality TV-style reports on their daily lives. While Peva posts about his listings—and sometimes those of other agents—he mostly focuses on Georgetown history, local businesses and community events, saying his goal is to benefit both his business and the neighborhood.
“If we don’t find something genuinely interesting and worth sharing, we won’t do it,” said Peva’s daughter, Violet Peva, a New York social-media strategist who films, edits and posts his reels. “We cover many topics, not just real-estate information.”
Peva is originally from Connecticut, but has lived in Georgetown for over 30 years, currently in a cottage-style house with a white picket fence. Over the years, Georgetown has changed. The Georgetown Set, a powerful group of Cold War-era residents whose Sunday-night potluck dinners are said to have swayed U.S. policy, has long faded away. The community is still home to high-profile Washingtonians, including a Republican senator and several cabinet members. But it increasingly also attracts technology and finance executives, according to Peva. He now routinely signs nondisclosure agreements, ensuring privacy for wealthy clients. The shift has made him rethink his marketing approach.
“For years, a big part of our Georgetown business was made up of people who maintained a low profile,” he said. Real-estate agents were similarly low-key. Today, curb appeal is more important, he said, and agents are promoting themselves more. “As this change was underfoot, I was thinking that I needed to evolve myself too,” he said.
Though his own social-media use is mostly limited to following sailing accounts, he asked his daughter to help him post his listings online. Violet, now 26, started coming to D.C. once a month to film his reels. After an early video, on a condominium building called the Elliott, her sister Fern called her to report: “Daddy’s blowing up on Instagram,” Violet recalled. The reel got over 50,000 views. The next two each drew over 300,000. Peva’s most popular post ever, with over 838,000 views, was about the Grateful Dead playing in Georgetown. Sometimes, Peva interviews Georgetowners such as Quinn, the author, or Jamie Stachowski, the owner of a local butcher shop.
Peva, who majored in history in college, now spends up to two hours a day on research, usually in the morning while on his stationery bike. Online, he pores over old newspapers or the Library of Congress website, and he has a collection of articles and books—in and out of print—about Georgetown.
Companies often approach Peva for promotional posts, he said, but he turns them down, feeling that followers would lose interest in constant commercials. One exception is a recent paid post on Mount Vernon, the former home of George Washington. Peva wanted to share its history, he said, and didn’t want to lose the opportunity to another Instagrammer.
Anthony Arend, a professor at Georgetown University, has lived in his current home for 19 years without any plans to sell or buy real estate. But he follows Peva and often likes his posts.
“He is very charismatic, he is energetic, and he obviously knows a lot about the community,” said Arend, who has referred house-hunting friends to Peva.
One of Peva’s biggest deals—the $10.5 million sale of a 19th-century Italianate mansion—came after he made two 2024 reels featuring the property. In March, he sold the longtime O Street home of Tim and Jane Matz for $5.8 million after featuring it on his Instagram. Peva had showed them the home 25 years earlier, with Violet in a baby carrier on his back.
Last year, Kate Watts, 49, a digital consultant, called Peva to sell her late father’s three-bedroom house on Q Street; her husband had seen Peva on Instagram. In an October reel, Peva praised the architecture of the house, designed by modernist Hugh Newell Jacobsen. Halfway through, he mentioned an open house the next day, ending with an upbeat: “Did I also mention this house is for sale? $3.75 million!” The reel got 27,000 views, the open house was packed, and the buyers made an offer at the list price on the same day.
