Housing dreams shattered around the globe by rising rates
Hong Kong’s price increases have been slowed by China’s slowdown and a population exodus. Due to its pegged currency, Hong Kong’s monetary system generally follows the US.
This has led to mortgage rates more than doubling since the beginning 2022. Home prices in the notoriously pricey area have reached a six-year-low, builders offer deep discounts and government is slashing additional stamp duties for certain buyers to revitalize the hub.
Hong Kong will continue to be affected by the housing crisis if interest rates do not start to drop. Hong Kong’s prices have risen so high in the last decade that many people still find it difficult to afford their homes. This is the same situation that has played out around the world.
With buyers increasingly shut out, homeownership’s viability as a way to achieve middle-class stability – the bedrock of personal finances for generations around world – looks a lot less viable. Owners who own their homes for a long time and have built up equity or have no mortgage are the winners. They can then invest in high-yielding investments.
Many things are still unknown. A worsening Middle East conflict and China’s ongoing economic woes – with their own property crises centered on its indebted builders – could cause a global downturn, which would lead to lower housing demand and lower prices. This would result in a far greater financial crisis. In terms of realty, commercial properties have become more worrying for the economy.
Consumers are now beginning to realize that even though inflation is slowing down and the rate-hiking campaign of many countries has ceased, borrowing costs are unlikely to be as low in the future as they were during the 15 years following the financial crisis.
House prices in New Zealand and Canada are still high, and those who bought their homes at the peak of their value now have to pay higher mortgage payments.
Renters are feeling the strain from UK to South Korea. Higher interest rates have made it difficult to build in many areas.
These scenarios, while they may differ from country to country, all have the potential to drag down global economies, as people are spending more on housing, regardless of whether they own or rent.
When rates suddenly soared, people faced with higher payments believed they could get by or took out mortgages hoping to refinance later. When the costs continue to rise for years, it is a different story.
Intercontinental Exchange data showed that the housing market has become the least affordable for the past 40 years. A typical home requires about 40% of the median income.
Most of the effects could still be in the future. Goldman Sachs economists reported last month that the effects of higher mortgage rates would be most noticeable in 2024. They predicted that transactions would drop to their lowest level since the 1990s.
It will also have a negative impact. As a result, mobility for work could be restricted, families and friends could more often live together, and homes that younger families could buy may not be available as older people age.
In the meantime, the majority of homeowners have equity near record levels and are not affected by rate increases, which could otherwise lead to foreclosures or forced sales, giving buyers a chance in the market.
The shockwave that was sent through the world’s housing markets last year as central banks raised interest rates quickly has given way a cold, new reality. The real estate boom which fuelled millions of people with wealth is now over.
Global markets are unable to cope with the high cost of borrowing and the shortage of houses that keep prices up. This has led to housing becoming even less affordable in many regions, while those with resetting loan payments are under increasing financial stress.
The US mortgage market, which is dominated by 30-year loans, has effectively been frozen because homeowners who have low interest rates are reluctant or unwilling to sell, and buyers feel squeezed.
The US sales of previously owned houses have fallen to the lowest levels since 2010.