It’s hard to justify talk of a slowdown in home prices or a slowdown in the real estate market when inflation is still running rampant at 13 percent. However, a pattern of slowdown associated with cost-of-living issues and higher interest rates can be discerned even if the affordability constraint on buyers has not changed.
Headline inflation hit a cycle high of 15.1 percent in February/March before declining to 14.5 percent in April, 14.1 percent in May and 14 percent in June, with the latest figures for July indicating an annual level. by 13 percent. Moving real estate agents are reporting more shares in the market which leads to longer selling times and lower asking prices.
There was a noticeable change in May and June, as price increases slowed. “We see this trend continuing,” said Pat Davitt, CEO of the Institute of Professional Auctions and Appraisers (Ipav) in response to the latest home price numbers.
We are most likely seeing the end of the pandemic phase when prices were fueled by factors such as increased savings and remote work and the beginning of a new phase of cost of living/higher interest rates with lower demand as a result. But will it lead to a price correction?
One forecast is for annual house price inflation to drop to 8-10 per cent by December, and it is lower in Dublin. Higher interest rates – the European Central Bank is planning a series of hikes to combat inflation – will almost certainly result in a lower rate of increase next year, but accelerating population growth – one of the traditional drivers of housing demand – combined with the continuing and enduring issue of supply action in The other direction, which supports demand.
So the always optimistic industry professionals don’t think the current slowdown will turn into a dip in prices (generally) but they do acknowledge that some high-priced and high-demand areas may see a correction.
Industry forecasts are rarely implemented, and some unexpected dynamics usually take over, Ireland has one of the most volatile real estate markets in the world. It had the fastest growth in home prices in the run-up to the 2008 crash, the largest after the crash in property values and therefore the fastest recovery.
The industry hasn’t picked up on any of these trends until they are well established. She predicted that the epidemic would lead to a collapse in prices, and the opposite happened.
The general trend is a confluence of forces, which makes it difficult to predict.
Housing has become one of the most divisive issues on the planet, with low and middle income earners priced out of urban markets from here to New Zealand.
The uniform nature of the problem across industrialized countries with different domestic issues – supply being the main problem here – has led many to speculate about the link between real estate prices and the great financial experiment of the era, quantitative easing (QE) and low interest rates.
Quantitative easing effectively increases the amount of money in the economy, which means that banks can lend more cheaply, which means that mortgages also become cheaper. Whether this is the main driver of the global housing issue is still debated but the link is undisputed.
When a bank buys government bonds with a certain maturity date, it raises its price. This, in turn, reduces the rate of interest that the bond pays to its holders. “When the interest rate on government bonds is lower, this transfers itself to other interest rates, such as those on mortgages and corporate loans,” Bank of Canada Deputy Governor Paul Baudrey said recently.
Massive cash injections into the global financial system by central banks in the post-2008 era and more recently as a result of the pandemic have stabilized interest rates as investors are sent farther and further afield to find returns, creating asset price bubbles in many sectors, but more Obviously in real estate. Will reversing these policies change the dynamic?
House prices in Canada fell for the sixth consecutive month in August amid a series of sharp interest rate increases by the central bank. Some regions recorded only slight declines, but prices in others fell sharply.
A report by BNP Paribas predicts that house price growth in Europe will slow significantly in 2022, “due to significant price increases over the past years and a significant rise in mortgage rates.”
“An increase in mortgage rates will exclude many families from home ownership and could negatively affect families that are burdened with variable rate debt, as well as those that have to refinance their mortgage,” she says. The report notes that “affordability appears to be overstretched” in most European markets and that the rise in mortgage rates will continue to worsen housing affordability and cause a slowdown in the private housing market.
All we can say for now is that housing price growth is slowing. Where the trend depends on a combination of factors, not the least of which is the current inflation dynamics.