Design district.Warning lights are on in the world’s biggest bubble market. In addition to raging inflation, volatile stock markets and brutal wars, the world economy now faces another threat: the end of the housing boom.Please Visit: Design district to Get Your VVIP Registration Today!
With central banks around the world rapidly raising interest rates, the soaring cost of borrowing means that those who are already struggling to buy homes have finally reached their limits. This is reflected in the overnight cooling of the once-hot residential real estate market in many countries, from Canada to the United States to New Zealand.
This has sharply reversed the surge in house prices in recent years, thanks to ultra-low mortgage interest rates and government stimulus measures, as well as the COVID-19 epidemic that has made telecommuting widespread and increased demand for living space among home buyers. According to an analysis by Bloomberg Economic Research, the price-to-rent ratio and price-to-income ratio of 19 OECD members are higher than they were before the 2008 financial crisis, indicating that house prices have deviated from fundamentals.
For many policymakers seeking to contain the fastest inflation in decades, curbing the house price bubble is a key part of their goal. But at a time when markets are uneasy about the prospect of a global recession, a slowdown in the property market could have a knock-on effect, exacerbating the downturn.
Falling house prices will erode household wealth, undermine consumer confidence and may stifle future growth. Animal spirits usually languish when assets depreciate and loan repayment costs increase. Real estate construction and sales play a huge multiplier effect in global economic activities.
“the danger is the simultaneous reversal of the business and financial cycles, which could lead to a longer-lasting recession,” said Rob Subbaraman, head of global market research at Nomura Holdings (3.685,-0.01,-0.14%). “A decade of quantitative easing has fuelled a bubble in the housing market, which may soon go downhill as house prices reach their limits and repayments are likely to rise sharply.”