Rebound In U.S. House Prices Is Part of a Global Trend

The latter part of the decade brought with it a fluctuating global housing market. However, recent indicators suggest a resurgence, particularly in the OECD countries and the United States. The bounce back from what was the most significant property slump in the last decade could signal a new era of stability and growth for homeowners and investors.

Towards the end of 2022, the housing market experienced a downturn as central banks across numerous economies implemented the swiftest increase in interest rates in recent decades, a measure taken to manage inflation. As you can see from the graph below, which shows the average interest rate on 30-year mortgages, the Federal Reserve didn’t hold any punches when it came to lowering interest rates. The average 30-year mortgage rate bottomed down at 2.68% in December 2020.

This resulted in a modest 0.6% growth in house prices quarter-on-quarter in OECD nations, marking it as the smallest increase since 2012.

However, the third quarter of 2023 witnessed nominal house prices grow by 2.1%, a substantial increase from previous quarters.

This growth suggests a broader economic recovery, as property markets begin to stabilize. In contrast, the United States displayed notable resilience, with real house prices rising by 5.2% in the year to November, despite earlier economic turbulence.

The varying trends between the OECD and the United States are telling of their unique economic environments. The OECD’s less pronounced fluctuations could be attributed to its diverse membership and economic structures, which provide a buffer against rapid market changes. On the other hand, the U.S. housing market’s quick recovery might reflect its economic policies’ effectiveness in responding to global economic pressures.

House prices in most advanced countries are either increasing or stabilizing. Even countries where prices are falling, they are doing so at a slower rate. Although prices will probably fall further in countries with large rental markets, such as Germany, Denmark, and Sweden, it seems like the worst is behind us. On the other hand, migration and restrictive planning permission have kept the pressure on house prices in many countries, including the UK, Canada, and Australia.

For the average consumer, the increase in house prices could mean an increase in home equity, but it also makes entering the housing market more challenging for first-time buyers.

Market resilience varies by region; however, current trends suggest a cautious optimism that the market is better equipped to handle future downturns than in previous years.

Central bank policies, particularly interest rate adjustments, have a significant influence on mortgage rates, which in turn affect housing affordability and prices.