Housing Correcting At Different Rates But Has Further To Go

House prices continue to correct in countries where monetary tightening has been brisk but also where there are high levels of household indebtedness. Countries where the adjustment has been more gradual or is yet to begin tend to have lower household debt in comparison, such as the US and Portugal. Given slowing growth, poor affordability and refis at higher rates the housing correction likely has further to go, but while it remains orderly central banks are unlikely to be too concerned.

• This week Australia reported a 1.1% m/m drop in home prices in January, NZ -0.3%, the UK -0.6% and the US -0.2% (November). Australia is now down 9.7% from its 2022 peak but the UK is down only 3.2%, even though both countries rose 24% over the pandemic period. The US rose by more over that time at 42.5% but is only down 2.5% from its 2022 peak (see chart).
• Corrections are likely to be deeper where there are high levels of household debt as a share of disposable income in a rising rate environment. Norway, the Netherlands, Australia and Sweden all have ratios above 200% (see chart) and all of them saw soaring house prices during the pandemic. Prices in the Netherlands rose 38.2% over this time but have so far only corrected 4.5%, as there is a lower share of variable rate mortgages and the ECB was one of the last to hike.
• It is worth noting that those countries with a high share of variable rate mortgages have seen some of the largest corrections to date, such as Australia, Sweden and Canada.