Global Housing Prices 'Overheating' Warning Signal

OECD 37 Countries' Growth Rate 5% Last Year... Highest in 20 Years
Experts Say "No Market Collapse Expected"

[Image source=AP Yonhap News]

[Asia Economy Reporter Kwon Jae-hee] A warning has emerged that the global housing market is overheating due to years of ultra-low interest rates combined with the COVID-19 pandemic. However, experts predict that this will not lead to a housing market collapse like the 2008 subprime mortgage crisis. It is expected that the market will naturally cool down due to future interest rate hikes and demand easing.

On the 28th (local time), The Wall Street Journal (WSJ) pointed out that the global rise in housing prices is increasing bubble concerns. It added that this has triggered government interventions in some countries.

According to the Organisation for Economic Co-operation and Development (OECD), housing prices in 37 major countries reached an all-time high in the third quarter of last year. The annual increase rate last year averaged 5%, the fastest pace in 20 years.

This is interpreted as market liquidity flowing into real estate due to years of ultra-low interest rates, and the COVID-19 pandemic further fueled this as governments worldwide implemented monetary easing to mitigate the economic shock caused by COVID-19.

WSJ analyzed, "Countries are in a difficult situation where they maintain ultra-low interest rates to recover from the economic shock caused by COVID-19, yet worry about citizens taking on excessive debt to buy homes that may decline in value in the future."

The Danish central bank stated, "The ultra-low interest rates sustained over recent years and the cheap funds expanded during the COVID-19 pandemic have flowed into the real estate market, causing people to take on more debt to purchase homes," adding, "It is clear that a long-term annual housing price increase of 5-10% is unsustainable."

In response, governments have intervened in the real estate markets, but the calming effects appear minimal. Last year, housing prices in Shenzhen, China, rose 16% compared to the previous year. In New Zealand, the median housing price surged 23% year-on-year in February, reaching an all-time high, prompting stricter mortgage lending standards. In Sydney, Australia, where housing prices reached record highs, mortgage applications surged, causing loan approval processing times, which usually took only a few days, to now take up to over a month.

Notably, WSJ reported that in South Korea, housing prices rose by 15% at one point last year, and in Seoul, some couples reportedly delayed marriage registration to purchase homes.

However, WSJ reported that economists from the U.S. and several other countries view the recent housing price overheating as unlikely to lead to a housing market collapse similar to the 2008 global financial crisis. Reasons cited include higher credit ratings of borrowers compared to that time, increased down payment ratios, and a greater proportion of actual homebuyers rather than speculators. Accordingly, the overheated market is expected to naturally cool down with future interest rate increases and demand easing.

This content was produced with the assistance of AI translation services.