by admin Why the global rally in house prices continues – What Knight Frank research reveals
The bullish party in the domestic housing market continues, with prices now just shy of the all-time high of 2008 before the financial crisis. The new double-digit growth during the third quarter of 2023 has catapulted Greece into the global top 3 of the countries with the strongest annual rate of change, although the Greeks are watching the… celebration from afar, since the tone of the rise is still set by the investment movements of foreigners.
In more detail, based on the global index prepared by the international company of real estate appraisers and consultants Knight Frank, the Greek residential real estate market in the third quarter of 2023 is ranked 3rd highest among 56 countries in terms of the average annual increase in nominal prices. Specifically, the annual rate of change in housing prices for the whole of our country was 11.9% in the period July – September 2023, with the cumulative increase since 2017 reaching 57.5%, according to the data from the Bank of Greece (BoG). Based on the apartment price index compiled by the Central Bank for the entire country, the highest value of the index was observed in the year 2008 (101.7) and then followed a steady downward trend, to record the lowest value in 2017 (59). Since then, the apartment price index has recorded a steady upward trend, reaching 92.9 in Q3 2023, just 8.65% short of its all-time high. However, as can be seen from the figures of the Central Bank, during this period the difference in the market is made by foreign investors, while the purchases from Greeks are limited and are made with equity capital. Therefore, given that the market remains highly dependent on inflows of foreign capital, it is possible that there will be corrections.
Turkey at the top
In Turkey, at the mercy of the highest inflation, an annual increase in nominal prices of 89.2% is recorded in the third quarter of 2023, as a result of which it maintains the lead in the global ranking. It should even be noted that the housing market of the neighbouring country has continuously occupied the first place since the first quarter of 2020. In general, South-east Europe dominates the top five rankings, with Croatia in 2nd (+13.7%), Greece, as mentioned above, in 3rd and North Macedonia (+11.0%) in 5th. The only “dissonance” is Colombia, which is ranked 4th in the global index. Japan is the best performing country in the Asia-Pacific region, with 6.3% annual growth, followed by India (5.9%). In the United States, home prices rose 1.3% in the third quarter as mortgage rates rose, leading to affordability challenges. At the bottom of the ranking we find Sweden (-11.1%), Slovakia (-10.1%), Finland (-9.6%) and Hong Kong (-8.7%).
Why the global rally in house prices continues
House prices continue to rise globally despite efforts by central banks to fight inflation through higher interest rates, Knight Frank analysts said. Average annual price growth stands at 3.5%, coming very close to the pre-pandemic 10-year average of 3.7%. Among the 56 markets monitored, 35 saw annual price increases, while 21 saw price decreases. The rate of price growth reached 10.9% in the first quarter of 2022, but slowed sharply to 2.2% in the second quarter of this year. The rise in the last quarter suggests strengthening price growth in several markets, including Ireland, Sweden, the UK and the US. These markets have sustained prices despite higher costs for mortgage borrowers due to a lack of available properties for sale. Remarkably, despite the fastest interest rate rise in history, house prices fell only slightly at the start of this year and have continued to rise since then and are now 3.5% above their 2022 peak.
Even adjusted for inflation, real house prices are only 2% below their 2022 peak, despite higher interest rates. The resilience of house prices can be attributed to limited available inventory, increased household savings and strong wage growth, Knight Frank’s report pointed out. In particular, in countries such as the UK, wage growth is outstripping inflation rates. However, the primary concern for markets arising from the resilience of house prices is a slower recovery in sales volume. Across all advanced economies, sales have fallen 15% to 25% from their recent peaks. The absence of a price correction suggests that this restraint in activity is expected to persist, likely into 2024 and possibly into 2025. Sales volume is expected to recover only when prices drop significantly, it stressed. According to Liam Bailey, Knight Frank’s global head of research, “The resilience of global house prices is surprising in light of rising mortgage costs for borrowers, yet strong savings, above-inflation wage rises and low supply of stocks for sale act as market supports. The big issue for housing markets in 2024 will remain low liquidity, with sales volume down by as much as ¼ from its recent high. Only a shift to lower interest rates will stimulate sales activity.”
Source: Xanthi Gounari, 29/12/2023