According to property consultant Knight Frank, global housing markets continue to display healthy price growth in late 2023, despite the record rise in interest rates since late 2021. Across our basket of world cities, average prices only experienced a decline on a quarterly basis in the final quarter of 2022, after which prices have risen by 2.7%.
The fundamental pillars supporting these prices remain: low stock availability, above-inflation wage growth, elevated household savings, and limited new-build construction. These factors collectively contribute to maintaining prices at levels that are stretching traditional affordability metrics, especially with the rising cost of debt.
Turkish cities once again occupy the top two spots, showcasing the strongest annual growth in our rankings at 102.7% (Ankara) and 77.6% (Istanbul). Dubai secures the third position, while European markets Zagreb and Athens claim the final spots in our top five.
At the bottom of Knight Frank’s rankings, European markets face tougher conditions, with Stockholm, Bratislava, and Frankfurt all experiencing double digit annual price declines.
Liam Bailey, Knight Frank’s global head of research said, “Homeowners are breathing a sigh of relief as interest rates appear poised to decrease in 2024. While this is positive news for those worried about transitioning to higher-rate mortgage deals, it’s important to acknowledge that interest rates are expected to stabilize at levels higher than those homebuyers grew accustomed to during the pandemic. With prices starting to rise again, the risk of potential future price declines lingers due to the ongoing stretched affordability.”
What’s changed?
With prices rising for successive quarters, it is fair to ask whether the much-heralded housing market downturn is over. While the aforementioned supports will continue to underpin pricing into 2024, most key city housing markets are still grappling with stretched affordability.
Consequently, many prospective homebuyers are compelled to enter the rental market due to insufficient deposits and the prospect of high mortgage repayments.
Despite the recovery in price growth, several pressures will impede a more sustained housing market recovery, including a revival in housing market transactions. Chief among these obstacles are higher mortgage servicing costs. Although mortgage rates are expected to edge down in 2024 due to anticipated policy rate cuts in the US, Europe, and other regions, the cost of debt will settle notably higher than pre-pandemic levels. This factor will further exacerbate affordability pressures for households transitioning from previously agreed cheaper deals in recent years, says Knight Frank.
