NEW YORK – Around the world, buyers are pulling back as central banks raise interest rates at the fastest pace in decades, sending house prices falling.

Meanwhile, millions of people who borrowed cheaply to purchase homes during the pandemic boom face higher payments as loans reset.

“We will observe a globally synchronized housing market downturn in 2023 and 2024,” said Hideaki Hirata of Hosei University, a former Bank of Japan economist who co-authored an International Monetary Fund paper on global house prices. He warns the full impact of this year’s aggressive rate hikes will take time to play out for households.

“Sellers often overlook signs of shrinking demand,” he said. Many people who paid record prices face loans due to reset higher just as soaring inflation and a potential recession hit.

“Young families that have taken on debt have never experienced in their lifetime a sharp rise in interest rates at a time when their real, inflation-adjusted wages are falling,” said Rob Subbaraman, head of global markets research at Nomura Holdings Inc. “This could come as quite a shock to them.”

In the United States, most buyers rely on fixed-rate home loans for as long as 30 years. Adjustable-rate mortgages represented, on average, about 7% of conventional loans in the past five years. By contrast, other nations commonly have loans fixed for as little as a year, or variable-rate mortgages that move closely in line with official interest rates.

Source: Bloomberg (09/11/22) Curran, Enda; Thomson, Ainsley

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