Why Home Price Corrections Vary Around the World

　　Global Housing Market Correction

　　A recent article by Goldman Sachs researchers delves into the ongoing home price corrections in developed economies worldwide. The report titled "Why the Global Housing Market Has Further to Slide" emphasizes that elevated mortgage rates will continue to impact housing markets in countries like New Zealand, Canada, and the United States throughout much of the year.

　　Impact of Higher Mortgage Rates

　　The article highlights the significant impact of higher mortgage rates on housing markets worldwide. Goldman Sachs economists observe that sales and prices will likely remain pressured in most G10 economies this year. This follows a surge in housing activity during the pandemic, which abruptly reversed in the second half of 2022 due to rate hikes enacted by central banks. The resulting spike in mortgage rates has led to a contraction in housing starts, sales, and prices that shows no signs of abating.

　　Variations in Home Price Declines

　　The home price correction, however, is not uniform across countries. New Zealand and Canada have experienced significant declines, with prices falling by 16.2% and 15.8%, respectively, since their 2022 peak. In contrast, national home prices in the U.S. have only decreased by 2.7% from their summer 2022 peak.

　　Fixed Mortgage Rates in the U.S.

　　The disparity in home price declines can be attributed to several factors. One key difference is the prevalence of fixed mortgage rates in the U.S. compared to countries like Canada. U.S. borrowers typically obtain fixed mortgage rates, insulating them from sudden mortgage rate shocks. This reduces the likelihood of homeowners listing their properties due to financial distress, limiting the downside risk in the U.S. housing market.

　　U.S. Housing Market Outlook

　　Goldman Sachs economists anticipate that home prices in the U.S. will experience a peak-to-trough decline of just 5%, significantly lower than the 19% decline projected for New Zealand and Canada. This relatively tame decline is attributed to the extremely low vacancy rate in the U.S. housing market, which acts as a buffer against price drops.

　　Potential Impact of Global Banking Sector Distress

　　However, the economists caution that distress in the global banking sector could tighten lending standards, offsetting the potential benefits of future declines in mortgage rates. Recent financial turmoil has heightened uncertainty in the housing outlook, as ongoing pressures could lead smaller banks to tighten lending standards despite declines in long-term yields.

　　Economic Drag from Housing Market Weakness

　　Goldman Sachs researchers expect the combination of weakened housing activity and declining home prices to act as an economic drag. Higher borrowing costs for homebuyers have significantly impacted housing affordability, and the full impact is yet to be fully realized. The timing of this impact varies across countries due to differences in mortgage markets, with countries with higher shares of fixed-rate mortgages experiencing delayed rate impacts.

　　Housing Market Response to Rate Hikes

　　The report notes that the housing market's strong response to rate hikes has helped slow overall growth below trend without triggering a recession or a rise in delinquencies in most major economies. This controlled decline in housing activity is seen as a positive development in managing economic growth.