If the global housing boom is finally running out of steam, how far will prices fall? Analysts at Capital Economics, a consultancy, forecast modest drops of 5-10% in America and Britain. In these countries, homeowners are less likely to be forced to sell by rising mortgage costs since fixed-rate loans are common. In Australia and Sweden, the analysts reckon prices could slip by 15%. With higher levels of household debt, and thus more exposure to rate rises, Canada and New Zealand are most vulnerable—prices in these countries could fall by 20%.Two factors should prevent house prices from entering a death spiral. One is the shortage of homes in most rich countries.... The other factor is tight labour markets.
But the pain will be unevenly spread. Pandemic hotspots are particularly vulnerable. During lockdowns, the search for large gardens or green space sent housing markets into a frenzy... Cracks have started to appear in these markets. Fewer bidding wars are taking place in the American mountain towns and sunbelt states that attract well-paid Californians and New Yorkers. More than half of homes for sale in Salt Lake City, Utah, had their price cut in June; in Boise, Idaho, three-fifths did. The question now is how low prices will go.The Royal Bank of Canada thinks sales in its home country will plummet from their peak in 2021 by more than 40%, worse even than in the financial crisis when they fell by 38%.
