In Sweden and New Zealand, rising rates pushed home values down 14%
The Fed's rate hiking campaign has brought activity in the U.S. real estate market to a crawl. But prices have barely budged.
The big picture: In other countries, the impact of higher rates on home prices is way more pronounced, according to a new report published by The Organisation for Economic Co-operation and Development (OECD).
State of play: Like the U.S. Fed, central banks around the world have fought against a surge of inflation with a flurry of interest rate increases, which have raised mortgage rates — making housing more costly to finance and driving sale prices lower.
Details: The deepest downturns in prices are in New Zealand and Sweden, two nations that saw surging home prices earlier in the COVID crisis. And the majority of borrowers in both countries have floating rate mortgages that reset with rising interest rates, which means household finances are put under pressure quickly — forcing some owners to sell.
- In contrast, the percentage of variable rates in countries like the Netherlands is much lower. The Netherlands and Denmark also have fairly large systems of subsidized public housing, meaning that people who, in countries like Sweden, might stretch to buy — and then be forced to sell — are more insulated from the rate increase.
- In the U.S., home of the uniquely American 30-year fixed-rate mortgage, the price impact — at least so far — of the rise in rates has been muted. "Golden handcuffs" — mortgages taken out while rates were low — incentivize people to hang onto their home rather than trade up to a new one.
The bottom line: Countries have different systems, and it's hard to say what's better or worse. More rate-sensitive housing markets like Sweden (where some mortgages reset every three months!) could result in a bit more affordability — and volatility — over time.