Real house prices are falling and will continue to fall in both advanced and emerging economies. The International Monetary Fund has released a detailed economic forecast.

During the COVID-19 pandemic, real house prices rose to record levels in many countries, especially in advanced economies. However, already in the second quarter of 2022, real house prices fell, with about two-thirds of countries experiencing negative growth and the remaining countries experiencing positive growth but at a slower pace.

This development was made possible by the actions of central banks: in 2022, they increased the cost of borrowing to fight inflation (mortgage rates rose to an average of 6.8% in advanced economies). And if interest rates continue to rise, demand for credit will likely weaken, and home prices will continue to fall.

Economies with high home prices and high levels of household debt (where floating rates are set) are particularly vulnerable in this regard. Economies with rapidly rising home prices and declining housing affordability, but low household debt levels until the recent onset of monetary tightening, may see prices fall more gradually.

As predicted by the IMF, over the next three years, across the board decline in housing prices could be about 7% in advanced economies and 19% in emerging markets.

At greatest risk of price collapse are Canada, Austria, Luxembourg, Norway, Sweden, and the Netherlands.

At low-risk countries such as Slovakia, Slovenia, Italy, Hungary, Greece, and Latvia.

Separately, the IMF dwelled on the situation in China. The real estate sector in the Celestial Empire is experiencing a protracted crisis, although in 2023 there are first signs of recovery: the share price of real estate developers partially recovered after a wave of support measures announced in November 2022. It is noted, however, that the Chinese economy is vulnerable to a correction in real estate prices, as real estate and the construction sector account for a large share of lending.