Global real estate: housing prices in full boom

Ever-lower lending rates, more savings: property prices are on the rise around the world. According to a recent study by the think tank Oxford Economics - which examined house prices in 14 countries between 1900 and 2021 - houses would be overvalued by about 10% compared to long-term trends, with variations between countries.

While not as pronounced as the one that preceded the 2008 financial crisis, this housing boom would be one of the largest since 1900. "If we compare price/rent ratios over the long term, prices could be overvalued by about 11%. In the last boom, which peaked in 2006, we estimated overvaluation of between 13% and 15%," says Adam Slater, chief economist at Oxford Economics.

Low interest rates and record savings

Since the 1990s, this global surge in property prices has been driven by bank loans at very favorable interest rates. And even though lending conditions have tightened in some of the countries observed by Oxford Economics, such as in France with the recommendations of the High Council for Financial Stability, the pandemic has had two notable consequences. First, the greater importance of a comfortable home - larger and with a balcony, terrace or garden. Second, a surge in savings that allows people to buy above market price.

Looking more closely at the data analyzed by Oxford Economics between 1946 and 2021, among the 14 countries studied, the riskiest markets are the Netherlands, Canada, Sweden, Germany and France. In the Netherlands, for example, purchase prices are 14.3 percent above the long-term average trend and rental prices are 15.3 percent higher.
In France, purchase prices versus the long-term trend are overvalued by 2.8% and 4.1% for rentals. An observation shared by the site Meilleurs Agents. In the capital, the stone is negotiated according to him on average 10.296 euros/m2 for an apartment, that is to say an increase of 0,3 % in 2021. Prices are also rising in the six largest provincial cities: +0.3% in Lille, Nice and Strasbourg, +0.5% in Lyon, +0.6% in Marseille and Nantes.

Inflation back on track

Over one year, at the end of March 2021, 1.08 million old homes were sold in France. Unprecedented, even though the period was marked by several confinements due to the Covid-19 epidemic.
How far can the price increase go? "There is evidence that the longer a housing boom continues, the more likely it is to end, especially when prices become detached from fundamentals, sometimes referred to as 'duration dependence'," considers Adam Slater. The key question going forward will be how real estate loan rates behave in the face of this abundance of savings and higher inflation.

Translated with www.DeepL.com/Translator (free version)

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