Expected Global Real Estate Trends in 2022 and Beyond

The current market trends have given buyers access to better prices, more inventory and less competition. While current mortgage rates haven’t necessarily made properties more affordable right now, as they come down over the long term, being able to purchase a property at a lower price on a buyers terms is always a good long term benefit.    

There are numerous market conditions that cause housing in Canada and across the world to constantly change. Economicshelp.org and Investopedia.com highlight a few of the most critical factors:

Immigration.  Immigration has an obvious impact on the demand for sale and rental properties. In areas experiencing high levels of immigration like the GTA, Texas, Portugal etc. there have been significant upward pressures on pricing for both for sale and rental properties.

Economic growth.  Demand for housing is directly related to the rise and fall in household incomes. When the economy is healthy, incomes rise and consumers are able to spend a greater part of their income on properties. When incomes fall, they’re less able to hold onto their properties and can’t afford to buy new ones.   

Unemployment. When unemployment rises, fewer people are able to afford a property. Fear of unemployment can be just as paralyzing. The exit or the entrance of a major employer within a community can be enough to steer local housing into a buyer’s market (few buyers, offers below asking price, falling prices, incentives extended to buyers) or a seller’s market (high home prices, multiple offers, bids over asking price, few to no seller concessions.) 

Consumer confidence. Consumers must feel confident in their own finances and future prospects. If they believe housing is too expensive or risky, they’ll defer buying until they feel more stable.

Supply. A shortage of housing will cause prices to rise. An excess of housing will cause prices to fall. Housing can be impacted by other factors such as the price and availability of building materials, local zoning laws that encourage or limit growth, and the availability of skilled labor.

Mortgage availability. Lenders also must feel confident in order to loan money for mortgages. Before the Great Recession that began in 2007, lenders were flush with money to lend. Afterward, they tightened borrowing standards to the point that many homebuyers were unable to qualify for a mortgage. Among the steps banks take to control lending are raising credit score and down payment requirements, raising mortgage interest rates so only the most qualified homebuyers make the cut, and eliminating the availability of riskier loan products.

Interest rates. Low and high interest rates affect the monthly costs of housing with smaller or larger mortgage payments. As interest rates rise, a greater number of homebuyers are priced out of being able to afford a home when interest rates rise.  When the market is sluggish with fewer homebuyers, interest rates can be lowered to make homebuying more affordable and attractive.

Demographics. These are data that describe the characteristics of a given population, including age, incomes, household compositions, marriage and divorce, education levels, migration patterns, births, deaths, immigration, and population growth, to name only a few areas.  When baby boomers were born between 1945 and 1964, they became the largest demographic to date and created a housing boom in the 1960s, ‘70s, and ‘80s. As they began retiring around 2010, they became “empty nesters,” creating demand for smaller homes and over-55 community developments. Additionally, during the pandemic, boomer began to give their children “early inheritances” at record paces in the form of downpayment gifts. This created another run on housing in many different markets.

Government Policies/Subsidies. First time homebuyer’s tax credits, mortgage stress tests, home improvement programs and developer fees can all play a role in either helping or hurting a real estate market.

The Law of Unintended Consequences

Commercial real estate was clobbered by global pandemic that began in earnest in March 2020. During quarantining, people who worked in offices, restaurants, schools, etc. had to find alternative ways to stay in business. Office workers began working from home, restaurants pivoted to take-out only, and schools conducted classes online. To avoid crowds, many homebuyers moved to the suburbs to find larger homes where they could hunker down comfortably with family. Interest rates dropped to all-time lows and a housing boom ensued, driving prices to record levels. There weren’t enough homes to buy in almost all markets across the globe. Supply chain interruptions, lack of skilled labor and excessive government red tape exacerbated the problems.

So what can we expect in real estate trends here and across the globe? Global residential real estate markets are expected to grow more than nine percent between 2022 and 2027. The residential real estate market in emerging nations such as India, China, Brazil, Argentina, and South Africa is mostly being driven by urbanization. India, China and Nigeria are expected to account for 35% of the growth in the global urban population. Today, approximately 55% of the world’s population lives in cities. By 2050, more than 7 out of 10 people will live in urban environments.

Because of limited space and resources, these urban migrants are creating more density and are more likely to live in apartments, as in Sydney, Australia where 30% of homes are described as apartments.

In the U.S., steady job growth, a stock market at all-time highs, rising rents and expectations of higher mortgage rates helped create a frenzied housing market. But with interest rates doubling year-over-year and the stock market wobbling, homebuyers feel less secure. Goldman Sachs predicts a 22% drop in new home sales, a 17% drop in existing home sales and an 8.9% drop in housing GDP in the US by the end of 2022.  In 2023, Goldman Sachs forecasts even deeper declines to US home sales, predicting another 8% drop. For existing home sales, researchers predict they’ll drop another 14%, and housing GDP will drop another 9.2%.

Those predictions could stimulate another round of foreign investment in U.S. residential real estate. The Federal Reserve says that Chinese investment in U.S. housing, widely considered to be a safe harbor, is estimated to be between $170 billion and $344 billion.  Meanwhile some countries are imposing restrictions on foreign residential investors, including Canada, New Zealand, Australia, and Hong Kong. 

The global residential market will be influenced by the global real estate market which includes investment and commercial properties. Asia Pacific was the largest region in the real estate market in 2021, while North America was the second largest region. The Asia Pacific region is home to some of the world’s most populous and rapidly growing cities. These cities include Beijing and Shanghai in China, Mumbai and Delhi in India, Tokyo and Seoul in Japan, and Sydney and Melbourne in Australia. Combined, these cities have a population of more than 1 billion people.

According to Goldman Sachs research, real estate is slowing down globally, due to a spike in mortgage rates in most countries which include the U.K., Canada, New Zealand and the U.S. Borrowing rates are likely to rise further into 2023 which will put more pressure on slowing markets.

Residential growth across developed countries is declining – with the UK down by 50%.  A 10 percentage-point slowdown in house sales growth tends to be followed by a two percentage point slowdown in house price growth in or around six months, researchers estimate. Prices are still rising in Germany and the U.K. but they’re declining across Australia, Canada, Sweden and New Zealand, down almost 8% from their peak during the pandemic.

Yet, the supply of housing is tight in many countries, including the U.S., Canada, the U.K. and New Zealand. While a tight housing market may be enough to avoid a slump, say researchers, the rapid decline in affordability and slowing home sales suggest that a housing downturn could be a real risk.

With inflation rising higher than it had in decades, and governments increasing rates to get it under control, most researchers believe the real estate market globally will continue to be slow until at least midway through 2023. In Canada for instance, many researchers are expecting the Fed to pivot to easing monetary policy in mid-2023 and will start to reduce interest rates by the end of 2023 and into 2024. This aligns with other country’s outlooks and would lead to an increase in housing demands by the end of 2023.