By Hari Kishan
BENGALURU (Reuters) – House prices in most key markets are expected to rise modestly this year and next on expectations that mortgage rates will fall further and help marginally improve affordability of expensive properties, a Reuters poll of analysts showed.
Most central banks were expected to start cutting interest rates at some point this year, or have already done so, with the US Federal Reserve expected to begin doing so at its meeting on 17-18 September.
This is giving house prices in developed countries, which are facing a low supply of affordable properties for most new buyers, an impetus to rise slightly.
The Reuters survey of nearly 150 housing analysts conducted between August 19 and September 3 in the United States, 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 monetary policy easing, the expected price increases are modest.
While median predictions showed the change in average home prices in 2024 would vary across markets from a modest 1.4% decline to an increase of about 8%, the overall outlook was positive, with analysts upgrading their outlooks for five of the nine housing markets surveyed three months ago.
“Falling mortgage rates in many markets will strengthen the position of aspiring homebuyers, but only modestly, at a time when affordability pressures are already at a critical point,” said Matthew McAuley, director of global real estate research at JLL.
“A growing proportion of the population in countries such as the United States, Canada, Britain, France, Germany, Australia and Japan will rely on income-based housing models to meet their housing needs.”
A near-80% majority of analysts, 82 of 106, who responded to an additional question said affordability would improve for first-time homebuyers over the next year. The remaining 24 said it would worsen.
But with supply still tight in most countries, many would-be new home buyers are likely to continue renting in the coming years and pay even more in rent.
Urban home rents were expected to outpace consumer inflation over the next 12 months in all countries surveyed, according to the median forecasts of analysts who responded to a separate question.
“In a higher interest rate environment, prime rents continue to outperform capital values… Low stock levels in many locations and an increased number of potential buyers are driving the trend in many prime rental markets,” said Justin Marking, head of global residential at Savills.
Median 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 below 5% and some even below 3% — and who are unwilling to part with their homes at such cheap deals.
While the Fed is widely expected to begin cutting rates in September and by a total of 75 basis points by the end of the year, a lack of adequate supply is already propping up a market in which average home prices are well above their pandemic-era peak.
Average house prices in Australia are forecast to rise by more than 6% this year, again due to limited supply, which will also push average prices above their pandemic peak.
“However, it is worth noting that we do not anticipate a material improvement in affordability, as housing unaffordability is likely to be structurally higher than pre-pandemic in the short to medium term,” said Johnathan McMenamin, senior economist at Barrenjoey.
In neighbouring New Zealand, where prices have risen by more than 40% during the COVID-19 pandemic, they were expected to rise by just 1%.
In India, demand for luxury properties from cash-rich individuals was expected to push up home prices even further in the coming years. Even though demand is coming from a wealthy few in a country of 1.4 billion people, that translates into a sizable market — enough to push up average home prices by about 8% this year and 6% next year.
Germany’s battered property market, where house prices fell 7.2% last year, is expected to stabilise in the coming months with a 1.4% drop this year, followed by a 2% rise in 2025.
(Other stories from the Reuters Q3 global housing survey)
(Other reporting and surveys by Indradip Ghosh, Pranoy Krishna, Jonathan Cable, Sarupya Ganguly, Susobhan Sarkar, Devayani Sathyan and Vijayalakshmi Srinivasan; editing by Ross Finley and Jonathan Oatis)