Housing Markets Defy Expectations: Robust Recovery Amidst Chaos

Despite localized challenges, housing markets in the rich world are experiencing surprising strength and resilience.

The housing market in San Francisco is a tale of two cities. While some areas continue to struggle with the aftermath of the pandemic, others are witnessing a remarkable rebound. This pattern is not unique to San Francisco but is echoed across the rich world. Contrary to economists’ predictions, housing markets have defied expectations and proven to be more resilient than anticipated. This article explores the factors behind this unexpected strength and examines the potential challenges that lie ahead.

Shift in Preferences:

One key factor contributing to the housing market’s resilience is a shift in preferences brought about by the pandemic. As people spend more time working from home and engaging in home entertainment, the value placed on living spaces has increased. This heightened demand for housing has prevented significant price declines.

Changed Mortgage Market:

Another factor that has buffered the housing market from the impact of rising interest rates is the changed mortgage market. In countries like the United States and Denmark, borrowing on fixed rates has long been common, shielding borrowers from central bank rate increases. In recent years, households in other countries have followed suit, shifting towards fixed-rate mortgages. This has delayed the impact of rate rises, with the average mortgage rate across the rich world rising only half as much as the average central bank policy rate since 2021.

Strong Household Finances:

The third factor supporting house prices is the improved financial position of households. Stricter regulations following the 2007 property crisis have limited access to credit for less creditworthy borrowers. As a result, wealthier individuals, who are better able to weather higher interest costs, dominate the market. Additionally, many borrowers still have significant savings accumulated during the pandemic, which can be used to make repayments. In fact, estimates suggest that in the average rich country outside of America, these savings amount to 14% of yearly disposable income.


While the housing market’s surprising strength is a positive development, there are potential challenges on the horizon. Mortgages with short-term fixes will soon expire, forcing households to refinance at higher rates. If inflation remains persistent, central banks may need to raise rates further, putting additional pressure on homeowners. Furthermore, the depletion of excess savings and a weak economy could lead to rising unemployment, which would threaten some homeowners. For now, however, the housing market in the rich world remains resilient, defying expectations and offering a glimmer of hope amidst the chaos.






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