Why are house prices surging once again?
In many parts of the world, housing prices have skyrocketed, making homeownership an unattainable dream for many. This phenomenon is not isolated and affects both major cities and suburbs. But what is behind this widespread increase in housing prices? This article explores the main reasons why housing prices are rising.
As reported by The Economist, by the end of April, housing prices had increased by more than 3% annually in China, 6.5% in the United States, and 5% in Australia. Closer to home, Portugal was the seventh country with the highest price increase in the first quarter of 2024, with a 7% year-over-year increase. Poland (+18%), Bulgaria (+16%), and Lithuania (+9.9%) had even higher increases.
It is true that the increases follow a complicated period for the real estate sector in Europe. After a sharp decline between 2011 and the first quarter of 2013, housing prices remained stable between 2013 and 2014. This period was followed by a rapid rise in early 2015, and prices increased faster than rents until the third quarter of 2022. After that, there were two quarters of declines and slight fluctuations until the 0.4% year-over-year increase in the first quarter of 2024.
Why Prices Are Rising
Judging by the economic context, the real estate sector has shown great resilience. Housing prices in Spain continue to rise despite more expensive mortgages and a slowdown in sales. As we know, the lack of supply makes it difficult for prices to drop.
The Economist identifies three causes explaining the global rise. The first cause is immigration. According to the weekly, the foreign-born population is growing at a rate of 4% annually, the fastest on record. This increase generates higher demand for housing, which in turn pushes both purchase and rental prices up.
Secondly, the British publication cites the sacrifice capacity of buyers. The higher cost of debt is causing mortgage holders to reduce spending on other items or even dip into savings to afford payments. In some countries, mortgage terms are being extended, creating the potential risk of still paying off the house well into retirement.
But the main factor is the economy. Changes in interest rates have made mortgages more expensive but have also increased deposit yields. The Economist notes that average wages in wealthy countries have grown by nearly 15% since 2021. Generally, these increases have far exceeded the rise in mortgage costs, making the market resilient.
In addition to these factors, there are mismatches between supply and demand, lack of affordable housing alternatives, or rising construction costs, depending on the case. This combination makes solving access to housing a complex task. Without comprehensive collaboration between governments, developers, and communities to create solutions that balance supply and demand and promote affordability, housing will remain a problem for millions of people worldwide.