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Why the global property market will never return to pre-pandemic conditions

By Orana Durney-Benson
16 November 2023 | 3 minute read
global equities ifa

Despite punishing levels of mortgage debt and rental unaffordability causing global property prices to fluctuate, experts predict that house prices around the world are unlikely to return to “normal”.

New research by Oxford Economics has forecast that house prices around the developed world are unlikely to normalise to their pre-COVID-19 rates. While researchers found that house prices have been tapering down in most major global markets this year, they emphasised that this downturn is unlikely to continue further.

Instead of house prices coming down, the firm predicted that housing unaffordability will be corrected by a gradual increase in income.

According to a report by Oxford Economics, authored by senior economist Tamara Basic Vasiljev, houses post-pandemic have been severely unaffordable to purchase but highly profitable to own.

Nevertheless, the research firm insisted that factors aside from a house price reduction will be the more likely contributors to a restabilisation of housing affordability.

When it comes to mortgage rates, the report admitted that mortgages around the world “look punishingly high”, but argued that this alone will not be enough to cause a reduction in house prices.

With mortgage debt levels varying by household and region, Ms Basic Vasiljev reminded market watchers that mortgage rates “might not be relevant for a significant proportion of both households in general and home owners in particular.

“It might skew other indicators of the housing market, bringing volumes down as people are reluctant to move and negotiate a new mortgage, but it affects house prices less than what you might expect,” she said.

The report also indicated that bank lending standards around the world appear to be on track to ease, especially outside the US.

“It does seem that the worst is behind us in terms of household sector credit,” Ms Basic Vasiljev shared.

She concluded that labour markets, not finance, are the crystal ball for future housing affordability.

“So far unemployment rates have gone up only modestly; real wage growth is positive, though slowing; participation is yet to recover to pre-pandemic trends; and unemployment is no longer a very popular search term in Google trends,” the economist stated.

“This will certainly be a mitigating factor on any financial pressures that the housing markets are experiencing amidst the mortgage rates surge.”

Ultimately, with a global economic slowdown “looming” and housing affordability at record lows, the research firm does not predict a slowing in house prices is on the horizon, in Australia or beyond.

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