Home » House prices: how low? UK, US, European, and other lessons

House prices: how low? UK, US, European, and other lessons

Stockholm in Sweden, where house prices fell by nearly 20% – among the biggest drops in Europe. Photograph: Maria Swärd/Getty Images

Across the world house prices are breaking records – but this time it is because of how fast they are falling. Houses in Stockholm are now selling for 20% less than their peak, Sydney prices are down by almost 14% over the year, while in San Francisco they are down by 15%, in Auckland by almost 22% and in Toronto by 16%.

Germany has registered its biggest six-month price fall for two decades, while in France forecasters are expecting declines of 5% to 7% this year, and after a strong year in Spain, the first price declines are being reported in Mallorca and Ibiza.

Meanwhile, maybe spare a thought for some homeowners in the South Korean capital of Seoul, where apartment prices are reportedly down by 24% since October 2021.

The UK’s house price falls to date – down by 4.2% or 3.2% since their peak in August last year, according to the Halifax and Nationwide respectively – look relatively mild in comparison with some of those locations.

So what is behind the global mini crash, and are there lessons we can learn from what is happening in other countries?

At its simplest, it’s about the cost of money. The long era of near-zero interest rates, which made borrowing to buy a home cheaper than at almost any time in history, is over, for now at least.

The Bank of England has raised rates from 0.1% in late 2021 to 4% today – with a corresponding rise in mortgage rates. Meanwhile, US average long-term mortgage rates are now above 6%. A year ago they were below 4%.

In the UK millions of borrowers are on fixed-rate deals that are still protecting them from sharp increases in their monthly mortgage costs. That’s very different to a country such as Sweden, where most households have variable-rate mortgages that go up in line with changes in interest rates.

As many economists point out, the house price falls follow eye-watering rises in some cities and some types of properties, and values are often only coming back to where they were a couple of years ago. Almost no one is predicting a full-scale property crash.

Some of the price falls are the unwinding of the “race for space” that was a global phenomenon during the coronavirus pandemic. Demand for larger individual houses jumped as people worked from home, leaving apartments in the cold. But over the past year the price of houses has generally fallen more than apartments.

However, even during a worldwide slump, there are always places that boom. Prices of luxury properties in Dubai – a refuge for Russian oligarchs barred in the west – soared by an astonishing 89% in 2022, according to the estate agent Knight Frank.


Europe’s fastest falling market

What the data says: apartments down 11% in the 12 months to December 2022, houses down 13.7%. (Source: HOX Valueguard). Stockholm houses down 19.8% peak to trough, apartments down 11.6% (source: SBAB.se)

Sweden, the European country with the biggest house price falls so far, has suffered some fairly brutal rate increases – and with most households on variable rates, the impact has been immediate.

Robert Boije, the chief economist at the Swedish mortgage lender SBAB, says: “One reason why housing prices have been falling more in Sweden than in most other EU countries is that we, to a large extent, have loans with floating and not fixed interest rates. This means that when central banks are increasing their key interest rates, it will pass through on mortgages with a faster pace in Sweden than in many other countries. Just a couple of years ago the floating mortgage rate in Sweden was as low as about 1% (when the Riksbank key interest rate was minus 0.5%). Now it is about 4.5%.”

A for sale sign in the street outside residential buildings in the Midsommarkransen neighbourhood of Stockholm, Sweden, in 2013.
A for sale sign in the street outside residential buildings in the Midsommarkransen neighbourhood of Stockholm, Sweden. Photograph: Bloomberg/Getty Images

The London-based consultancy Capital Economics says: “Swedish house prices have fallen 18% from their peak and could drop by a further 5% or so from here.”

At Valueguard, which produces Sweden’s most widely used index, the chief executive, Henrik Åkerblom, says: “Swedish society had become accustomed to very low interest rates. Younger people had never seen high interest rates.”

Russia’s invasion of Ukraine (Sweden is a nearish neighbour across the Baltic) was also a hammer blow to confidence.

“When we started seeing the declines, it was when Russia invaded Ukraine,” Åkerblom says.


Nine straight months of price falls

What the data says: nationally, prices are down 7.2% in the year to January 2023, falling every month since April in the largest and fastest decline since at least 1980 (source: CoreLogic HVI)

Among the big cities, Sydney has led the way down, with prices falling 13.8% over the year. Houses in Byron Bay, world-renowned for its beaches and laid-back lifestyle, have fallen 25%.

Many economists are predicting more falls in the first half of this year, with the central bank, the Reserve Bank of Australia, expected to raise interest rates again from their current level of 3.35% (their highest level in just over a decade) to combat inflation.

A property for sale in Sydney in 2021.
House prices in Sydney have dropped 13.8% over the year. Photograph: Dan Himbrechts/AAP

Shane Oliver at AMP Capital forecasts a total national price decline of 20%, noting that mortgage rate increases have translated into a 27% fall in the purchasing power of a buyer on average earnings. Many existing homeowners face a sharp increase in monthly mortgage costs when their fixed rates end soon, to be replaced with new rates heading towards 6%.

But the price falls have to be seen in the context of epic increases in recent years: the International Monetary Fund recently called Australia one of the most “misaligned” and unaffordable property markets in the world.

New Zealand

The biggest global price falls

What the data says: the median house price is down 13.3% over the year to January 2023, with Auckland values down 21.7%. Transactions have fallen by 27% (source: Reinz index)

Weeks of wild weather have pounded New Zealand’s biggest city, Auckland, and its property market has taken a battering, too. Most housing economists reckon the country is only two-thirds of its way through the downturn, and are forecasting a peak-to-trough decline of about 22%.

Aerial view of Devonport neighbourhood in Auckland, New Zealand
Property prices in Auckland, New Zealand, are down 21.7%. Photograph: Pavel Dudek/Alamy

In a classic boom and bust, Auckland prices soared by more than 40% between early 2020 and early 2022, boosted by interest rates at rock-bottom lows and government measures to protect the economy from Covid. Prices jumped to an average of NZ$1.3m (£675,000). But as interest rates rose, the bubble burst, and prices in the city have now fallen below NZ$1m.


An abrupt end to a decade-long boom

What the data says: nationally, prices rose 2.1% in the calendar year 2022 but fell 1.8% in the last three months of the year The six-month fall – 2.5% – was the biggest in two decades (source: Vdp pfandbrief.de).

“The many crises of 2022 are now leaving their mark on the property market” says Jens Tolckmitt, the chief executive of the VDP, the Association of German Pfandbrief Banks. “We anticipate further drops in the coming quarters – but we expect them to remain moderate on the whole … Even if prices were to fall by 15% in total over a longer period, they would be at the same level as at the beginning of 2020.”

A for sale sign hangs outside a residential property in Unterschleißheim, near Munich, Germany, in 2010.
House prices in Germany fell 1.8% in the last three months of 2022. Photograph: Bloomberg/Getty Images

Germany is often regarded as a more “sane” property market than the UK but prices in Munich, Germany’s priciest market, far exceed those in London. A typical apartment in Munich costs €800,000 (£710,000), while houses are on average €1,840,000. London’s average (flats and houses combined) is £528,000 (source: Nationwide index, Q4 2022).


First price drops begin to appear

What the data says: nationally, prices were up 7.2% in 2022 but in December, price rises came to a near halt, while the number of new mortgages issued plummeted by 22.5% (source: Consejo General del Notariado)

Last year, Spain was one of the fastest-rising markets in Europe, with prices in Madrid ahead by an average of 12.2%, and housing transactions at their highest since the boom year of 2007.

For sale sign in a building in Madrid, Spain, in 2021.
House prices in Madrid were ahead by an average of 12.2% last year. Photograph: Europa Press/Getty Images

But as El País noted in early February: “The slowdown in the real estate market is a reality.” It is currently most marked in the Balearic Islands – Spain’s priciest market – where sales were down by a third in December and prices slipped month on month. Remarkably, average prices across Spain are still below where they were before the financial crisis in 2007-08.


Boom ends, with prices forecast to slip through 2023

What the data says: Paris apartment prices were down 1% in the year to September 2022 but prices for all dwellings, on a national basis, were up 6.4% (source: Insee.fr)

One problem with comparing house prices internationally is that every country counts data differently. British and American data is focused around houses, while a lot of the European data is the per-square-metre cost of apartments. France is difficult to track as its figures, when published, only capture the position several months earlier. As one French property agent told the Guardian: “All the data is out of date – it’s a little like forecasting the weather last autumn.”

A view of the facade of a building in Asnières-sur-Seine, a suburb of Paris, in 2013.
The prices of apartments in Paris were down 1% in the year to September 2022. Photograph: Thomas Samson/AFP/Getty Images

But like elsewhere in Europe, the evidence is clear that sales and prices are sagging. “Prices in major cities such as Paris, Bordeaux and Lyon have fallen back, after many years of significant price growth. We expect this trend to continue throughout 2023,” says Trevor Leggett, the chair of the estate agents Leggett Immobilier.

Century 21, France’s biggest estate agency, is forecasting a drop in prices of 5% to 7% in 2023, at least in certain departments. It says that in the major cities, apartment prices began falling last summer.


Gentle declines nationally but San Francisco crashes

What the data says: the Case-Shiller index from S&P shows house prices nationally up 7.7% in the year to November 2022, the last available data release. But since June they have declined by 3.6% nationally and by 5% in the 20 biggest cities. In San Francisco, the average single family home has tumbled in price by almost $250,000 –15% – (£207,950) over the year to January to an average of $1.38m, according to the California Association of Realtors (CAR)

A correction in US house prices was inevitable after the Federal Reserve began increasing its base rate, pushing up mortgage costs swiftly. The benchmark 30-year fixed-rate mortgage in the US has risen sharply over the past year – from 3.9% to 6.3%.

Miami, Tampa and Orlando were the red-hot US property markets of 2022.

A real estate sign is shown in front of a home for sale in San Francisco.
The price of the average single family home in San Francisco has fallen by almost $250,000 over the year to January. Photograph: Jeff Chiu/AP

But in the San Francisco Bay Area, suffering from a double whammy of big tech job losses on top of rising interest rates, price falls are accelerating. The January figures from CAR reveal that average prices in affluent Marin County, just over the Golden Gate Bridge, plummeted by an astonishing $300,000, or 19.9%, in only one month.

But the declines come after breathtaking rises in the Bay Area in recent years, and even after hefty falls, average prices are only back to where they were in 2019.

UK house prices – going down but how far and how fast?

According to Nationwide’s most recent data, house prices have fallen for four months in a row (October to January inclusive), with the annual rate of price growth collapsing from 14.3% last March to 1.1% in January.

The rival Halifax said house prices were stable in January but fell in each of the previous four months, and it put the annual rate of price growth in January at 1.9%.

Halifax has previously forecast that average UK prices will fall by about 8% this year, which it said “would place the average property price back at roughly the level it was in April 2021, reversing only some of the gains made during the pandemic”.

Colourful seafront houses and wild flowers in Whitstable, Kent, England, in 2007.
UK house prices have fallen for four months in a row, according to Nationwide. Photograph: Roberto Herrett/Alamy

Nationwide’s economists have suggested that this year we could see house prices “edging lower, perhaps by about 5%”.

The estate agent Savills has forecast that the average UK house price will fall by 10% this year, “with growth expected to resume in 2024 as affordability pressures gradually ease”.

The investment bank Nomura is among the most downbeat: last month it forecast a 15% fall in UK house prices by mid-2024.

Source: the guardian