The latest (Q1 2023) Global Residential Real Estate Market report by Global Property Guide has revealed that, after several years of strong house price growth, it is now evident that the world’s housing markets are losing steam.
This is not surprising given the combined adverse effects of reduced purchasing power caused by soaring inflation, record-high borrowing costs due to interest rate hikes, and a global economic slowdown.
When adjusted for inflation, house prices have risen in only 19 markets in the past year, and actually declined in 42 markets, from the countries that have published housing statistics for Q1 2023.
However, the report adds: ‘High inflation in most countries creates an impression that house prices continue to rise strongly. For instance, in Pakistan, nominal house prices rose by a huge 23.7% year-on-year in Q1 2023 but in real terms (after inflation), prices have actually dropped 8.7%. Likewise in Egypt, house prices surged by 22.3%, however if we adjust for inflation, real prices have actually declined by 7.9%.’
European property markets
House prices have risen in only 7 of the 27 European housing markets for which figures were available in Q1 2023. Most European housing markets are now cooling rapidly, amidst slowing global demand, the ongoing war in Ukraine and supply chain disruptions. Below is a brief summary of some of the European property markets covered in the report.
Turkey is still the strongest housing market in the global house price survey, buoyed by strong demand from both local and foreign investors. The nationwide house price index rose by a spectacular 54.7% in Q1 2023 from a year earlier.
Turkish President Tayyip Erdogan introduced an economic plan that prioritizes growth, investment, employment, and exports, pushed by a series of unorthodox interest rate cuts. The plan sparked hyperinflation and a currency crisis, with the nationwide inflation rate skyrocketing to an average of 73% in 2022 – the highest level since 1998.
Inflation finally decelerated, dipping below 40% in May 2023. However, the value of the Turkish lira has fallen substantially to a 20-year low.
Portugal’s housing market remains fundamentally strong, amidst strong demand coupled with a supply shortage. Nationwide property prices rose by 8.5% during the year to Q1 2023. On a quarterly basis, prices were up by 3.6% during the latest quarter.
However, overall economic growth is projected to slow to 1.8% this year, sharply down from 6.7% in 2022 and 5.5% in 2021, amidst high inflation and rising interest rates, according to Bank of Portugal.
Modest to minimal annual house price increases were seen in Spain (3.9%), Iceland (3.2%), Malta (3.2%) and Switzerland (0.7%). Iceland and Switzerland saw quarter-on-quarter price declines during the latest quarter.
Latvia’s housing market woes continue, with the inflation-adjusted average apartment prices in Riga falling by a huge 18.7% during the year to Q1 2023, in contrast to the previous year’s 4.6% increase. Though in nominal terms, the annual house price fall is much more modest, at 4.6% in Q1 2023. Quarter-on-quarter, real house prices in the capital city were down by 2.6% in Q1 2023.
The report added: ‘Demand is falling sharply, with the number of property transactions in Q1 2023 plummeting by 43% q-o-q in the housing estates of Riga and by 12% in the city centre, according to Arco Real Estate. Latvia’s economy is projected to expand by a miniscule 0.5% this year, following growths of 1.8% in 2022 and 4.5% in 2021, based on forecasts released by Latvijas Banka, the country’s central bank.
Sweden’s house prices are now in freefall, amidst a slowing economy, rising interest rates and soaring inflation. The nationwide residential property price index fell sharply by 18.2% in Q1 2023 from a year ago, in stark contrast to a y-o-y increase of 7.8% in Q1 2022. Quarter-on-quarter, property prices fell by 5.9% in Q1 2023 as demand continued to fall.
In Q1 2023, the total number of sold one- and two-dwelling buildings in Sweden fell to 9,683 units, down by 23.1% from the previous quarter and down by 18.4% from a year ago. The Swedish economy is projected to contract by 0.5% this year, after expanding by 2.6% in 2022, according to the European Commission.
Germany’s housing market conditions are deteriorating fast, as higher mortgage interest rates and rising inflationary pressures have compounded affordability constraints. The average price of an apartment fell by a huge 14.8% (inflation-adjusted) during the year to Q1 2023.
Until last year, Germany’s housing market has been growing continuously since 2014, with house prices up by more than 70% during that time. The German economy is expected to suffer another mild contraction in early-2023, amidst the continuous increase in energy prices for households caused by the disruption in gas deliveries from Russia and the slowdown in export growth due to weak foreign demand.
As a result, the European Commission expects Europe’s biggest economy to grow by just 0.2% this year, after expanding by 1.8% in 2022 and 2.6% in 2021.
