House prices continued to increase in the international property markets last year. The housing price index we compute for 20 countries also shows, however, that the price momentum has eased despite the widespread low interest rate level. That said, this does not constitute a general trend but points to developments running more in opposite directions. While the housing markets in some countries such as Germany, the Netherlands, and Portugal have really raced ahead, house prices have come under pressure in particular in places where for many years the tendency has been almost consistently upward. In Australia and in Sweden prices actually fell slightly.
Given what will probably continue to be low mortgage rates, prices in most of the international property markets look set to rise further. However, the era of especially pronounced price increases seems to be over. Macroprudential instruments make property financing harder, high purchase prices weigh heavily on affordability, and the internationally weaker economic trend is giving the markets less of a boost. Moreover, residential construction has increased in a whole series of countries and is thus raising the housing supply.
It bears stating that there is nevertheless only a limited probability of there being major market corrections. The risk of a sharp surge in interest rates that then triggers price crunches in the property markets is at present rather low. After all, the economic prospects on both sides of the Atlantic have dimmed. But solely because of the high price level and the related high private debt load, the danger of larger price corrections in the housing markets has certainly not been banished completely. It is at any rate positive that the risks the property and financing markets pose are something that central banks and financial watchdogs are paying a lot more attention to now than they did in the past, and indeed they are actively seeking to contain undesirable developments.