The housing markets of developed nations have, for the most part, been flying over the last two years. For the most part, coverage has focussed on existing property owners being able to capitalize on price surges, while mostly ignoring the uphill battle faced by those looking onto the ladder. Regardless, coverage and circumstances have thrust armies of buyers into housing markets, resulting in historic rises.
While certainly an extreme example, house prices in the Canadian city of Halifax, Nova Scotia, shot up by nearly 50 percent from December 2019 to January 2022. Entering the first quarter of 2021, with the market surge kicking off in 2020, annual house price growth had already hit an average of 9.4 percent across the rich nations of the Organisation for Economic Co-operation and Development (OECD) – its fastest in three decades.
Now, with Q1 of 2022 in the books, it’s clear that the housing market is yet to slow down, with figures causing concern among some for how eerily similar they are to an all-too-recent housing bubble burst. Still, some can point to persisting causes of this surge as a reason not to worry, while others foresee a cooling in the near future.
Global housing continues to climb
Many don’t see these recent headline-catching price hikes as a result of events over the last two years; rather, something that’s been brewing globally for a good decade. As this business report from The Guardian details, global real estate has doubled the value of residential property over the last ten years, with it now at $350 trillion. Now, even the US stock market’s value of $45 trillion pales in comparison to the $100 trillion residential property market in China.
Where we sit now, however, puts the market into the realms of the last housing bubble – on paper, at least. In the US, the amount that an average household would need to pay on an average home has increased from around 24 percent in December 2021 to 29 percent in early April 2022 to 31 percent in mid-April 2022. The last time such a requirement was seen by income analysis from Black Knight, Fortune reports, was in September 2007.
Of course, 15 years ago, much of the crisis was built up by US banks issuing subprime mortgages, made worse by the Federal Reserve pumping up interest rates from one percent to over five percent. The ensuing collapse did lead to a grand shift in policy, and the 2008 Great Depression. That said, it’s impossible to deny that the existence and increased activity around bespoke tranche opportunities (new CDOs) is also worryingly close to what was seen in the run-in to the 2007 crash. For now, the market continues to fly.
Causes of the red-hot housing market
In each country, many different more localized causes can be found for housing markets getting hot. Still, there are a few factors that persist across the board. The first of which is the simple fact that accessing a mortgage and the market is increasingly easy and clear-cut. Now, the online mortgage broker Trussle can be accessed at all hours, is fee-free advice, makes decisions on mortgages in five days, and offers a soft check mortgage in principle. With these key details readily available, hesitant customers can easily get in.
Another major factor for the housing market being so hot is that there simply aren’t enough residential houses available. This certainly isn’t to say that there’s an overly short supply of homes overall, though – it’s a common mistake to make – but as there are fewer houses on the market, those selling can set higher prices or allow for negotiations to tick the price up. Once one house on the street finds success in this way, another will list, perhaps a larger build, selling higher and increasing the perceived value of others in its vicinity.
The housing shortage isn’t anything new, and given the way that housing is always tipped as the best way to increase one’s money, the desire for builders to keep building, and the lack of bans on multiple property ownership, you could say that the housing shortage is by design. Houses keep getting built and purchased, but not by those who need them. As found by Forbes, by the end of 2021, the Phoenix MLS listings had 5,200 fewer family homes for sale than at the end of 2019, while investors purchased 5,900 more of those same builds in 2021 than in 2019.
What’s to come from the housing market?
External forces appear to be starting to cool the red-hot price hikes in the housing market. Or, at the very least, experts are optimistic that this state of affairs won’t continue through to next year. The boom has to end eventually, with the cost of living increasing, lack of income upticks, mortgage rate rises, and an eventual increase in new builds set to combine to cool the market by the end of 2022. That said, the cooling may be more abrupt, with the key causes for a housing bubble pop – rise in interest rates, drop in demand, inflated prices above fundamentals, and downturns in economies – all showing up in early 2022.
Given how global events continue to influence the housing market, it’s a fool’s errand to attempt to predict how it’ll run over the next several months. All that is certain is that, through Q1 2022, the housing market in most developed nations remained hot. Should I Sell My House or Rent It Out? Here Are the Facts