Real Estate: Europe’s house price boom is over amid global downturn

After several years of strong house price increases, the world’s housing markets are now slowing dramatically. In Europe, growth was seen in only eight markets in 2022, including Turkey, which remains the strongest housing market in the world thanks to foreign investors.

According to the latest Global Residential Real Estate Market Analysis, released on 22nd March, house prices, when adjusted for inflation, have risen in only 20 markets worldwide, and actually declined in 39 markets. The authors of the report say this is not surprising given the combined adverse effects of increasing interest rates, soaring inflation, global economic slowdown and supply chain disruptions caused by the Covid-19 pandemic and aggravated further by the Ukraine crisis.

The report shows that most European housing markets are now losing steam: in France, the residential housing market dropped 6.56%, while in Italy, the figure was down 9.34%.

After growing by 1.8% last year, the German economy is expected to suffer another mild contraction in early-2023, amidst the continuous increase in energy prices for households and the slowdown in export growth due to weak foreign demand. The European Commission expects Europe’s biggest economy to grow by a miniscule 0.2% this year.

Foreign investment boosts Turkey’s property market

Turkey remains the strongest housing market in the global house price survey, buoyed by strong demand from both local and foreign investors. The nationwide house price index rose by a spectacular 63.02% during 2022, far higher than the previous year’s 17.37% year-on-year increase and its highest increase in recent history. In fact, in nominal terms, prices soared by about 168%.

Turkish President Erdogan introduced an economic plan that prioritises growth, investment, employment and exports, pushed by a series of unorthodox interest rate cuts. The plan sparked hyperinflation and a currency crisis, with the nationwide inflation rate skyrocketing to an average of 73% in 2022 – the highest level since 1998. The value of the lira against the dollar tumbled by 44% in 2021 and by another 27% last year – its worst since Erdogan came to power nearly two decades ago. But for foreigners, the plunge in Turkey’s currency value means that the property market is very attractively priced, luring many buyers from the Gulf.

Turkey’s economy is projected to grow by a modest 3% this year as inflation remains high following the lira’s crash, and with the Ukraine crisis adversely impacting tourism.

Housing market strong in Russia

Russia’s house prices continue to rise rapidly, despite its struggling economy amidst the ongoing Russia-Ukraine war. Nationwide house prices soared by 9.96% in 2022 from a year earlier, up from the previous year’s 6.13% growth. During the latest quarter, nationwide house prices increased slightly by 0.7%.

However, the outlook remains gloomy as hundreds of thousands of Russians have left the country in recent months and have been purchasing properties in other markets instead, such as Dubai.

UK struggling through biggest decline in over a decade

According to the analysis, the UK’s housing market is also cooling dramatically, amidst slowing economic growth. Real house prices fell by 4.21% in 2022 from a year earlier, in stark contrast to the annual growth of 5.5% in 2021. It was its biggest year-on-year decline since 2008. In nominal terms, UK house prices actually rose by 4.77% during 2022, but it’s still a slowdown from a year-on-year increase of 10.14% in 2021.

Experts say that demand is falling, with residential property transactions (seasonally-adjusted) in the UK plunging by 14.9% to 1,262,090 units in 2022, following a 42.8% growth during 2021, according to HM Revenue and Customs. The UK economy will likely slow sharply this year, with the IMF projecting a slight contraction of 0.6%, following a growth of 4% in 2022 and 7.6% in 2021.

Moderate to minimal house price falls were recorded in Jersey (-4.84%), Malta (-4.26%), Norway (-3.77%), Lithuania (-2.17%), Spain (-0.64%), Ireland (-0.35%), Estonia (-0.2%) and Slovak Republic (-0.18%). All, except Spain, had weaker performances in 2022 from a year earlier.

Housing prices fall across the globe

Internationally, after almost a decade of strong house price growth, the US housing market is now decelerating rapidly, amidst falling demand and weakening economy. The S&P/Case-Shiller seasonally-adjusted national home price index fell slightly by 0.64% in 2022 (inflation-adjusted), following annual increases of 11.09% in 2021 and 9.01% in 2020. It was its worst showing since 2011.

Meanwhile, the UAE’s housing market growth is now slowing, with Dubai’s residential property prices rising by a modest 4.14% during 2022, a deceleration from a year-on-year increase of 8.1% in the previous year.

House prices in both Australia and New Zealand are also falling sharply, amidst slowing demand caused by rising interest rates and declining purchasing power of consumers caused by soaring inflation.

House prices in Australia’s eight major cities fell sharply by 9.96% during 2022, in stark contrast to the previous year’s strong growth of 17.57% rise.

Both demand and supply are falling, with capital city home sales activity dropping 30.1% in Q4 2022, as compared to the same period last year, according to CoreLogic. For the whole year of 2022, capital city sales were down by 16.5% relative to 2021 figures.

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Photo credit: Maximillian Conacher, Unsplash