Housing Market Slump Coming, Rising Unemployment Suggest Troubled Times Ahead

Key Takeaways:

  • Experts are predicting that housing prices worldwide will fall by around 10%.
  • Unemployment has been fingered as one of the key factors that will shape the house prices drop.
Housing Market Slump Coming, Rising Unemployment Suggest Troubled Times Ahead
A global housing market slump is imminent.

LAGOS (CoinChapter.com) — The global housing market is flashing signals that a major downturn in the industry is imminent due to rising interest rates among other issues currently plaguing the global economy.

In detail, Westpac economists are predicting that the housing market worldwide will fall by around 10% over 2023 and 2024 combined. This prediction is coming on the back of the falls already recorded this year which dropped housing prices by about 20% from its 2021 peak.

Notably, housing prices in mainly the United Kingdom, Australia, Canada, Sweden, and China have been on a free fall. Recall, during the pandemic the UK government cut taxes and pumped funds into the housing market to help the industry. However, the temporary measure triggered a kind of mania among buyers, who responded by bidding up average prices by £31,000 ($35,000) — more than double the maximum tax saving.

housing market, Housing Market Slump Coming, Rising Unemployment Suggest Troubled Times Ahead

The frenzy echoed the buildup to the house price crash that started at the end of the 1980s, when the government announced it would cut tax relief for couples buying property, leading to a surge in demand. The slump that followed was brutal, with the market taking almost nine years to return to its previous high.

The housing market now faces similar challenges, according to Simon French, chief economist at investment bank Panmure Gordon, who forecasts a 14% fall in house prices over the next three years. That would take values back to 2013 levels in real terms. Bloomberg Economics expects values to drop about 10% next year.

New Zealand House Prices Forecast To Drop 18%

Similarly, a Reuters poll has revealed that New Zealand’s house prices are also going to fall more than previously thought this year.

Average house prices in the country rose by more than 40% at the height of the pandemic before reaching a peak in November last year. The Reserve Bank of New Zealand (RBNZ) previously said such heights were unsustainable.

Recall that the RBNZ aggressively hiked the cash rate, and mortgage rates have followed suit. Following this prices have retreated sharply, but not enough to solve the affordability crisis that left many potential homebuyers renting.

Average home prices were expected to decline by 11.5% this year and 6.0% in 2023, a Nov. 9-23 Reuters survey of 12 property analysts found. Those estimates showed a slightly deeper decline than the 10.0% and 5.0% fall predicted in a September poll.

Still, that fall would be tiny compared to the 250% rise in New Zealand house prices since 1998. This represents almost four times the average increase across OECD countries. Notably, house prices have nearly doubled in the last seven years alone.

Unemployment Catalyst For Housing Price Slump

Meanwhile, unemployment has been determined as one of the key factors that will shape the house prices drop. Adam Slater, a lead economist at Oxford Economics, explained that a sharp increase in joblessness could lead to forced sales and foreclosures.

“In an ideal world, you’ll get a bit of froth blown off the top [of house prices] and everything is fine. It isn’t impossible, but it’s more likely that housing downturns come with nastier consequences.”

Slater said.

While interest rates have been the catalyst for the housing market slowdown. It is worth noting that the jobs market will play a bigger role in determining how low prices ultimately plunge.

Comparing past house price crashes using Oxford Economics it shows that employment is the decisive factor in determining the severity of a downturn. This is because a spike in joblessness raises the number of forced sellers in the industry.

Employment levels in many advanced economies have recovered since falling at the start of the pandemic. However, there are early signs that labor markets are starting to cool as weak economic growth hits demand for workers.

Leave a Comment

Our Partners

SwapCoin.com RapidCoin.com ChangeNOW.com Paybis.com WestcoastNFT.com