That global housing market crash? You might be out of Dodge

After several consecutive months of tumbling home prices that, in the most overpriced metros in the country, raised concerns over the potential of a crash, the U.S. housing market is finally finding some stability—and so is the global market.

After booming for about two years since the beginning of the COVID-19 pandemic, the housing market started to undergo what most analysts described as a modest correction last summer.

Put simply, home prices had reached such impossible heights as to make home ownership and home buying an unaffordable dream for many, who, when mortgage rates suddenly jumped as the result of the Federal Reserve’s efforts to slow down inflation, were squeezed out of the market entirely.

The same happened in other housing markets around the world, as most countries faced a similar situation: higher interest and mortgage rates in response to rising inflation. Sales started to drop, and so did prices.

But after months of rising mortgage rates, the global housing market is finding its footing again, according to a recent report by Goldman Sachs Research, which found that “house prices are defying expectations and are rising in major economies such as the U.S., Australia and Canada,” as economists Joseph Briggs and Giovanni Pierdomenico wrote.

House sales, they wrote, are also starting to bounce back and reach some stability—much sooner than initially expected by analysts.

As per Goldman Sachs’ House price index, home prices in the U.S., Australia, and Canada were bouncing back up after plunging from their peaks in 2022, with the U.S. scoring 97.23 out of its peak of 100 in the house price index in February, Australia 91.49 in April, and Canada 86.02 in April.

In U.K., Germany, Sweden, and New Zealand, prices were still tumbling, according to Goldman Sachs, at 97.59, 95.16, 89.89 and 82.53, respectively.

“A surge in mortgage rates has led to a sharp housing market pullback in most major economies since mid-2022, but the global housing market is showing some early signs of stabilizing,” Briggs and Pierdomenico wrote. “House prices [are] leveling out more quickly and at a higher level than would normally be expected given the rapid rise in mortgage rates.”

The two economists believe this stabilization is because the lag from higher interest rates may be shorter than initially expected and that other factors—like low housing supply, low vacancy rates in most countries, and strong savings following the pandemic—may have helped the recovery by lifting housing demand.

Other analysts agree that the global housing market is faring better than expected.

“Mortgage rates have had a major impact on both buyers and sellers in 2023,” Orphe Divounguy, senior macroeconomist at Zillow Home Loans, told Newsweek.

“Rates that doubled last year sent mortgage costs soaring, pushing many buyers out of the market and others into smaller homes or less expensive areas. This year, rates have fluctuated but remained relatively high,” he continued.

“Current homeowners are sitting on near-record equity and have very low monthly costs making them less likely to trade in their current mortgage—which is almost certainly near or below 4 percent—for a new house and mortgage at market rates,” he continued.

“This has severely limited the choices that buyers are seeing on the market; U.S. inventory reached record low levels in May. High demand for homes meeting low supply has reignited home price appreciation this spring.”

“Real estate is the first sector to respond to changes in interest rates, therefore, it’s no surprise that home sales have fallen and commercial deals are also showing weakness,” Lawrence Yun, chief economist at the National Association of Realtors (NAR), told Newsweek.

“But with mortgage rates showing signs of stabilization and no longer hitting new cyclical highs, it is near certain that home sales will stabilize,” he continued, adding that the one sector which is not yet out of trouble is commercial real estate.

“Commercial real estate, especially in the office sector, could feel further pains,” he said. “The lending for most commercial real estate activity is provided by the smaller-sized community banks—instead of the big banks—and the community banks are suffering from fast interest rate increases by the Fed. Therefore, commercial prices will decline, which will further exasperate lending into the commercial real estate sector.”

Despite some optimism, analysts remain cautious about saying that the U.S. and global housing market are out of Dodge. Briggs and Pierdomenico said that mortgage rates could still rise in the coming months, which could lead to house prices growing in most countries.

Divounguy told Newsweek that the global housing market has not yet resolved one of the issues that fed the recent housing boom, a chronic lack of inventory—which is ultimately not going to help the global housing market.

“Without an increase in the number of newly built housing units coming on the market, less affordable housing translates to less mobile workers with implications for lower productivity growth and higher long-run inflation,” he said.

“The rise of work-from-home only partly mitigates this risk. The good news is that there are a record number of homes currently under construction which should help to alleviate some of the pressure on house prices.”