Already expensive global house prices to get modest boost from rate cuts
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Reuters poll graphic on home price change forecasts in key developed markets - https://tmsnrt.rs/3X9jfKg
By Hari Kishan
BENGALURU, Sept 4 (Reuters) -House prices in most key markets will rise modestly this year and next on expectations mortgage rates will fall further and help to marginally improve affordability of expensive property, a Reuters poll of analysts showed.
Most central banks were expected to start cutting interest rates sometime this year, or have already done so, with the U.S. Federal Reserve predicted to start at its Sept. 17-18 meeting.
That is providing housing prices in developed countries, contending with low supply of property that is affordable to most new homebuyers, impetus to climb modestly higher.
The Reuters poll of nearly 150 housing analysts taken Aug. 19-Sept. 3 covering the U.S., Britain, Germany, Canada, Australia, New Zealand, China, Dubai and India showed average home prices in almost all of these markets will rise this year and next.
But compared with recent episodes of expected central bank policy easing, the forecast price rises are tame.
While median predictions showed the change in average home prices in 2024 to vary between markets from a modest 1.4% decline to a rise of around 8%, the overall outlook was positive with analysts upgrading their outlook for five of nine housing markets surveyed from three months ago.
"Falling mortgage rates across many markets will strengthen the position of aspiring home purchasers, but only modestly, with affordability pressures already at breaking point," said Matthew McAuley, global property sectors research director at JLL.
"Increasingly large proportions of the populations of countries such as the U.S., Canada, Britain, France, Germany, Australia and Japan will rely on income-driven housing models to satisfy their housing needs."
A near-80% majority of analysts, 82 of 106, who answered an additional question said affordability will improve for first-time homebuyers over the coming year. The remaining 24 said it would worsen.
But with supply still tight in most countries, many aspiring new home buyers are likely to remain renters in coming years, and pay even more to rent.
Urban home rents were expected to outpace consumer inflation over the coming 12 months in all the countries that were surveyed, according to median predictions from analysts who answered a separate question.
"In a higher interest rate environment, prime rents are continuing to outperform capital values... Low levels of stock in many locations and higher numbers of would-be buyers are driving the trend in many prime rental markets," said Justin Marking, head of global residential at Savills.
Average U.S. home prices were expected to rise 5.4% in 2024, 3.3% next year and 3.4% in 2026.
Much of that price appreciation has to do with homeowners who have locked in low 30-year mortgage rates, most under 5% and some even below 3%, and who are unwilling to part ways with their homes on such cheap deals.
While the Fed is widely expected to start cutting rates in September and by a total of 75 bps by year-end, a lack of adequate supply is already underpinning a market where average house prices are well above their pandemic-era peak.
Average home prices in Australia were forecast to rise more than 6% this year, again on tight supply, bringing average prices above their pandemic peak too.
"It is worth noting though, that we don't anticipate a material improvement in affordability, with the unaffordability of houses likely to be structurally higher than prior to the pandemic over the short-to-medium term," said Johnathan McMenamin, senior economist at Barrenjoey.
In neighboring New Zealand, where prices surged over 40% during the COVID-19 pandemic, they were expected to rise only 1%.
In India, demand for luxury properties from cash-rich individuals was expected to drive house prices even higher over the next couple of years. Despite demand coming from a wealthy few in a country of 1.4 billion, that translates into a sizeable market, enough to push average home prices up by around 8% this year and 6% next.
The battered German housing market, where house prices plunged 7.2% last year, was expected to stabilise in the coming months with a 1.4% fall this year, followed by a 2% rise in 2025.
(Other stories from the Q3 global Reuters housing poll)
Reuters poll - Global housing market wrap - Q2 2024 https://tmsnrt.rs/3yHVu3e
Reuters poll - Global home price change forecasts - Q3 2024 https://fingfx.thomsonreuters.com/gfx/polling/akpeokmzbpr/Reuters%20poll%20-%20Global%20home%20price%20change%20forecasts%20-%20Q3%202024.png
Other reporting and polling by Indradip Ghosh, Pranoy Krishna, Jonathan Cable, Sarupya Ganguly, Susobhan Sarkar, Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Ross Finley and Jonathan Oatis
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