9 months ago • 2 mins
Buying a house today is just harder than it was a year ago – not least because mortgage rates reflect the sharp rise in interest rates. For prospective buyers, that generally means higher monthly mortgage payments, on top of high costs from inflation elsewhere. And that’s part of the reason why analysts at Goldman Sachs are forecasting further declines in house prices across many of the world’s advanced economies.
See, the bank estimates that for every 1 percentage point increase in mortgage rates, house prices are likely to decline by 2.5% (albeit with a lag of about two and a half years). And the impact of those costlier mortgages on actual house prices could be 10% to 20% heftier if inflation proves stickier than expected and keeps mortgage rates higher for longer.
This chart shows the expected home price declines across ten different countries from the 2022 peak to 2024, with New Zealand, Canada, Sweden, Australia, and the UK likely to see drops of more than 9%. Home prices in Italy, France, the US, and Switzerland are expected to hold up a lot better.
In Italy and France, that’s because a higher proportion of people own their homes outright, and are therefore less impacted by higher mortgage rates. Plus, house price increases in both countries since 2015 have been more modest compared to the US, Germany, and the UK. In the US, meanwhile, the majority of homeowners have 30-year fixed mortgages and that tends to insulate them from mortgage rate increases.
So, if you’re thinking about buying a house and hoping that prices might suddenly fall, you might just have to wait a little longer. And how long you’ll want to wait may depend on which country you’re in. If these estimates prove accurate, you might just be able to pick up a bargain in one to two years’ time.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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