Rate slap to owning houses; global downturn hits housing prices
By Our Special Correspondent
New Delhi March 17: International Monetary Fund (IMF) in a chart paper has argued that the aggressive rate hikes by the Central banks has led to crash of the housing prices worldwide. The research paper, backed with a chart of the 31 economies sought to lend its voice to the emerging trend of the people preferring rental housing than owning properties.
“Global housing markets are retreating after years of steady gains,” argued the IMF paper, stressing on widespread declines in inflation-adjusted housing prices for two-thirds of the countries with recent data from the Organisation for Economic Co-operation and Development (OECD). The paper was authored by researchers Hites Ahir, Prakash Laungani and Karan Bhasin.
The researchers argued that the housing prices in India have come down by 0.32 per cent. The property price decline in India is fourth lowest among the 31 countries, which have reported the negative impact. Denmark, New Zealand, Sweden and Canada are the top four countries where the housing prices have taken severe beatings on the back of the rate hikes.
The researchers sought to make a sense of the rapid rise in the interest rates in the last one year led by the US Federal Reserve pressing the rate spike accelerator in its bid to tame the runaway inflation. The US Fed has been almost followed by several of the Central banks in escalating their benchmark rates with twin aims – to control inflation and defend the domestic currencies.
“The moves underscore how housing markets are adjusting to rising interest rates as central banks try to contain inflation. Policy rates have increased on average by four percentage points across major economies, to levels that prevailed prior to the global financial crisis,” argued the researchers in the IMF paper, adding that “every one percentage point increase in real interest rates slows the pace of house price growth by about two percentage points”.
They also stated that the housing prices are now moving downwards after 20-year of steady gains, which had also coincided with the interest rates sloping down. “Prior to the recent tightening cycle, interest rates had been on a downward trend. Lower rates rationally led to an increase in housing demand by lowering the cost of borrowing to finance the purchase of a house or to build on to existing houses. Now the process has been thrown in reverse,” noted the IMF chart paper. It underlined that “every percentage point increase in the mortgage rate raises monthly interest payments for the average US homebuyer by $100, and the impacts can be more dire for buyers in countries with a predominance of adjustable rate mortgages”.
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