Hari Kishan
BENGALURU (Reuters) – Home prices in most major markets are expected to rise modestly this year and next on expectations that mortgage rates will fall further and make expensive properties slightly more affordable, according to a Reuters poll of analysts.
Most central banks were expected to start cutting interest rates this year or have already done so, with the U.S. Federal Reserve expected to start when it meets on Sept. 17-18.
This is helping to drive up house prices slowly in developed countries where most new home buyers struggle with a shortage of affordable properties.
A Reuters survey of about 150 housing analysts conducted between Aug. 19 and Sept. 3 in the United States, Britain, Germany, Canada, Australia, New Zealand, China, Dubai and India showed average home prices are expected to rise this year and next in almost all of these markets.
However, the expected price increases are moderate compared to recent times when central bank policy easing is expected.
While the median forecasts showed changes in average home prices in 2024 varying from a modest 1.4% decrease to an increase of about 8% depending on the market, the overall outlook was positive, with analysts revising their outlook for five of the nine housing markets upwards since the survey three months ago.
“Lower mortgage rates in many markets would strengthen prospective homebuyers’ position, but the effect will be marginal given that homebuying pressures are already at their limit,” said Matthew McCauley, global real estate research director at JLL.
“Increasingly larger shares of the population in countries such as the United States, Canada, the United Kingdom, France, Germany, Australia and Japan will rely on income-driven housing models to meet their housing needs.”
Of the 106 analysts who responded to a follow-up question, a majority (82 respondents), or nearly 80 percent, said home affordability for first-time homebuyers will improve over the next 12 months. The remaining 24 said it will worsen.
But with housing supply remaining tight in most countries, many potential new home buyers are likely to continue renting for the next few years and will end up paying even higher rents.
Analysts responding to a separate question averaged forecasts that predicted urban home rents would outpace consumer price inflation over the next 12 months in every country surveyed.
“In a rising interest rate environment, prime rental property continues to outperform capital values. Low inventory in many regions and an increase in buyer appetite are driving this trend across many prime rental markets,” said Justin Marking, global head of residential at Savills.
The average U.S. home price is expected to rise 5.4% in 2024, 3.3% next year and 3.4% in 2026.
A major factor behind this price increase is that homeowners with 30-year mortgages at low interest rates, most of which are below 5 percent and in some cases below 3 percent, are reluctant to give up their homes on such low terms.
The Fed will begin cutting interest rates in September and is widely expected to cut them by a total of 75 basis points by the end of the year, but ample supply shortages are already supporting the market, with average home prices well above their pandemic-era peaks.
Australia’s average house price is expected to rise by more than 6% again this year due to tight supply, which will also see average prices surpass their pandemic peak.
“However, it is worth noting that we do not expect housing affordability to improve materially and that in the short to medium term housing affordability is likely to remain structurally higher than it was pre-pandemic,” said Jonathan McMenamin, senior economist at Ballengee.
In neighbouring New Zealand, where prices have soared by more than 40% during the COVID-19 pandemic, prices were expected to rise by just 1%.
Demand for luxury properties from cash-rich individuals is expected to drive up home prices in India even further in the coming years. Despite the demand coming from a small number of wealthy individuals in a country of 1.4 billion people, it’s a sizable market, big enough to lift average home prices by about 8% this year and 6% next year.
Germany’s housing market, hit hard last year when house prices fell 7.2 percent, is expected to stabilise in the coming months, falling 1.4 percent this year before rising 2 percent in 2025.
(More from Reuters Q3 Global Housing Survey)
(Additional reporting and voting by Indradip Ghosh, Prannoy Krishna, Jonathan Cable, Sarpiya Ganguly, Susovan Sarkar, Devayani Sathyan and Vijayalakshmi Srinivasan; Editing by Ross Finley and Jonathan Oatis)
