12.12.2022
Moody’s analysis , the housing boom in many advanced economies is ending due to rising mortgage rates and weak economic growth prospects.
“A slowdown in home sales and a modest increase in home prices are now likely in most markets where home prices rose rapidly in 2021 and earlier this year.
“While we do not foresee erratic downturns like those experienced during the global financial crisis, housing activity will slow down and prices will normalize to levels more in line with economic fundamentals,” Moody’s said in a statement .
It argues that the speed and extent of adjustments will depend on macroeconomic and housing-specific factors such as mortgage market structure, housing supply conditions, and demand factors such as demographics. “Cooling housing markets will improve affordability, which has deteriorated significantly over the past two years. It will also reduce financial stability risks.”
Housing markets in different countries react differently to rising mortgage rates. “The correction in house prices could be significant in some markets, while in other markets there could be a steady increase in the nominal price from zero to a minimum, which reduces the real value of housing over time . Next year, we expect larger declines in house prices in the UK, US and Germany, with more minimal declines or gains in Portugal, Ireland, Italy and France.”
Moody ‘s said housing markets with more floating or fixed rate loans are at higher risk of a correction.
“In markets like the UK, which are dominated by mortgages that are being dumped as interest rates rise, current homeowners will face particular challenges as home prices rise over the next one to three years.
“In some markets, rising mortgage rates will not only reduce demand but increase supply as some current homeowners look to sell properties they can no longer afford.”
According to the analysis, while housing affordability will improve, it will remain volatile over the next two to three years. “In a number of countries, housing affordability is worse than shortly before the global financial crisis. Even in markets with declining home prices, higher borrowing costs and tighter financial conditions will limit affordability.”
