In parts of San Francisco, the housing market is in a state of crisis. For instance, there is an apartment near City Hall that sold for $1.25 million in 2019, but now it’s been listed for less than $770,000 and is still unsold. This has all come about after the chaos of the covid-19 pandemic, when drug problems have made living there less appealing. However, in other areas of San Francisco, the housing market is once again thriving. Prices have risen by 3% from a low point earlier this year. This same trend is echoed across wealthy countries, with some areas experiencing pockets of weakness but overall an unexpected strength.
According to the Dallas Federal Reserve’s data, global house prices have increased by 1.3% between the first and second quarters of 2023. Estimates for more recent months show further increases. Even in places where the housing market went haywire during the pandemic, prices are now higher than expected. For instance, house prices in Britain have risen by 1.1% in October, defying the expectations of economists. Similarly, American house prices are nearly 2% higher than they were a year ago and are also expected to rise further. This trend has defied the predictions of economists who believed that house prices would crash with the rise of interest rates.
Three important factors have allowed housing markets to resist the impact of higher rates. Firstly, the pandemic has changed people’s preferences, making them value their living spaces more, thereby increasing demand for housing. Secondly, the mortgage market has seen a shift towards fixed-rate borrowing in some countries, which has allowed people to insulate themselves from central-bank rate rises. Finally, households are in a better financial position and have accumulated significant savings during the pandemic, which they utilize to make their repayments.
While there are concerns about the sustainability of this trend, as mortgages with short-term fixes will soon expire and excess savings will eventually run out, the housing markets in wealthy countries are currently faring well. For now, they are a long way from the turmoil seen near City Hall in San Francisco.
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