International residential property: price growth slows as sales begin to fall

Market indicators suggest buyer sentiment in international property markets is weakening and sales slowing.
Written By:
Kate Everett-Allen, Knight Frank
3 minutes to read

Housing market slowdown

Global housing markets are entering a new cycle as interest rates in some advanced economies reach levels not seen for 14 years.

The transition from a sellers’ to a buyers’ market is gathering pace. As my colleague Chris Farhi commented recently in relation to the Auckland market, “buyers have gone from a fear of missing out to a fear of overpaying”.

Nevertheless, prices are still rising in most corners of the globe, just not at the pace they were.

The prime segment is registering annual growth of 7.5% on average (45 cities) whilst our index tracking national mainstream housing markets (56 countries and territories) is up 11.3% in Q2 year-on-year.

We expect a notable slowdown in the remainder of 2022 and 2023 with mainstream markets affected most due to their greater exposure to mortgage rates.

Our analysis suggests Canada, Sweden, Hong Kong, the Czech Republic and New Zealand are the most exposed to a housing market slowdown.

Prime property outliers

Prime central London and New York missed out on the double-digit annual rates of growth most other global cities saw during the pandemic.

For New York, a resurgent safe haven play due to economic headwinds, the stock market’s volatility and property’s credentials as a safe haven hedge will support prime prices.

Plus, currency shifts due to aggressive tightening in markets like the US will present cross-border opportunities for some.

In London, sterling’s weakness and price falls since 2014 means a US buyer currently enjoys a discount of c.50% in boroughs such as Knightsbridge and Chelsea. We expect strong activity in the coming months.

House price falls not at 2008 levels

There are four key reasons we think notable price falls will be limited to a few key markets:

1) Demand: Although coming off pandemic-induced highs, demand remains relatively robust in the prime sector.

2) Supply: Most advanced economies are still suffering from a historic backlog of undersupply. According to The Economist, America is short of either 3.8m or 5.8m homes; England needs an estimated 345,000 new homes a year and is building half that number; and Canada requires an additional 3.5m by 2030 at the current pace of construction.

3) Mortgage market: Banks adhere to a much tighter set of lending criteria and the proportion of households on fixed rate mortgages is significantly higher than in 2008. That said, with rates expected to reach 6% by the end of 2023 in some markets this will be a hard pill for some to swallow after a prolonged period of loose monetary policy.

4) Labour markets: Low unemployment in advanced economies means few forced sellers. Plus, household finances are in better shape post the pandemic due to accrued savings.

More or less housing regulation?

Governments were expected to intervene in 2022 to stay the course of accelerating house prices.

Instead, most are sitting on their hands waiting to see whether rising interest rates will do the job for them.

And some are taking the opposite approach, attracting not deterring foreign buyers.

In the same way we saw Golden Visas emerge from the shadows of the Global Financial Crisis, we’re now seeing policymakers go out of their way to attract a new breed of globally mobile High Net Worth Individuals.

Digital nomad and welcome visas popped up during the pandemic as tourist-deprived markets looked to stimulate their local economies with a new intake of untethered freelancers, tech and creative types.

Andalucia has now gone one step further and scrapped the wealth tax for residents and second homeowners with the aim of attracting new wealth to its prime enclaves such as Marbella, Malaga and Seville whilst also injecting the local economy with more capital.

Watch this space, as recessionary fears across the Eurozone start to bite, and policymakers are faced with rising levels of public debt we expect more incentives to be announced.

Read more or get in contact: Kate Everett-Allen, head of international residential research