Property prices around the world are falling and the credit market has come to a standstill

World property prices are falling due to interest rate hikes. And those in most countries are being raised very aggressively, to levels not seen in more than a decade. Company shares Real estate related industries have fallen by 24% globally this year, while the broader market has shrunk by 17%. In Poland, housing prices fell by 3-8 percent. since March this year. Most people, however, have no chance to buy cheaper apartments, because the credit market has practically stopped.

Rate hikes and real estate prices

Rate hikes affect the real estate market in several ways. Firstly, the price of the loan used to finance the purchase of new real estate is rising. The installments of previously taken loans also increase when they are based on a variable interest rate. This results in a decrease in demand, as well as the emergence of an additional supply of real estate, for which owners are no longer able to pay the installments. On the other hand, an increase in interest rates causes other alternatives to real estate to invest capital to provide higher rates of return. During the period of rising interest rates, you can sometimes earn more than on real estate, even on bank deposits.

For this reason, property prices in many countries are falling. However, before that happened, prices recorded record increases. In USA We had the most rapid increase in real estate prices in years. In March this year prices there increased by 20,8 percent. y/y But then showed a strong downward trend, when the average interest rate on a fixed-rate mortgage loan broke 7 percent. Also in Great Britain in March, prices rose by 14,3 percent. then dive. Strong price drops are also taking place in Germany i Sweden. In France, on the other hand, there was no strong increase in prices at the beginning of the year, and now prices are practically unchanged.

Property prices in Poland are also falling. In the largest cities, prices fell by 3-8 percent. since March this year, but still remain higher than a year ago. Mortgage servicing costs, which are almost 100 percent. based in Poland on a variable interest rate, increased significantly when the interest rate exceeded 9 percent. The market of new housing loans also practically came to a standstill, along with the increase in interest rates, the creditworthiness of the average borrower fell sharply. Due to regulations, it is also calculated in a more restrictive way than before. All this heralds further possible price drops.

REITs in adjustment

Many prices are also falling REIT funds (Real Estate Investment Trust) listed on the stock exchange and investing in real estate. REIT is currently an increasingly popular tool for investing in real estate, giving such an opportunity also to people who have small amounts of money. Most REITs focus on a specific part of the real estate market, such as offices, commercial or residential spaces. For example, REITs focusing on residential real estate in the US have fallen more than 25% since the beginning of the year. A safer haven for investors are specialized funds investing in advertising space, casinos or exclusive holiday resorts.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.