With all the ongoing economic and geopolitical tensions, investors are keeping an eye on the market for real estate with great interest. Suppose the recent headlines across the globe are any indication, it is logical to pay attention. Prices are down 15% from the peak, and Sweden’s housing market is believed to be experiencing “free fall.” Germany’s market is likely to plummet by 25 percent from the height to the peak. In the meantime, the base of the world’s largest market for luxury, Hong Kong, is getting shaken.

So, are we heading towards the following real estate market crash, or is it just an ebb and flow that is more common to the property market?

The reasons to be concerned

Market crashes usually follow natural bubbles in the real estate market. The term “real estate bubble” can be defined as a scenario where the median cost of a home is significantly more than the value due to price-building fundamentals. The 2007 crash in the housing market was an excellent example of a bubble caused by the expansive mortgage policies in the latter part of the 1990s finally began to fall to the floor. Economic recessions also can make the housing market go to the brink.

In the present, many indicators are showing signs of being in the red. In the wake of the recession caused by the pandemic, we have to deal with the effects of inflation and shrinking budgets for household expenses. As a result, central banks all over the world have increased rates of interest. In Germany, for instance, the rates for 10-year loans rose to 3.5 percent in September. They’re now on track to 4 percent and maybe over. The average interest rate for a 30-year mortgage is more significant than 6.8 percent in the United States. The ten year mortgage rates are fixed at 4.21 percent, up from 2.4 percent in September 2020. At 4.4%, fixed rates for ten years within the Netherlands are at their highest since.

There are exceptions. Take France. Even though it is true that the European Central Bank’s (ECB) primary interest rate is fixed at 2.5 percent, the country’s interest rate for loans for more than a year is currently 1.58% due to the legal limit on loans to real estate. This means that the interest prices in Europe are increasing with a lag of time and not only on market trends similar to those, for instance, in the United States or Germany, even though the latter is also soaring in line with the European Central Bank’s monetary policy.

… as well as feel and be

However, the possibility of a global real estate market crash is highly likely. To put things in the context of things, rates for interest were much higher in the early 2000s and have fluctuated and fluctuated since (see the table above). Although this isn’t likely to affect the housing market’s balance, it may shift the focus of investment from single-family homes toward multi-family homes. Institutional investors can also contribute to this trend, as they tend to prefer multi-unit properties.

There are also a lot of elements that will help to help stabilize the market. The first is that high interest rates for construction mortgages, as well as the rising cost of land, limit the quantity of construction. This results in the city’s population shrinking and a steady increase in demand. The second reason is that the global market can draw a specific strength due to its variety, with every need having distinct geographical and economic characteristics. Since there are a variety of real estate markets scattered all over the globe, many remain stable and provide fair rates, like Warsaw, Poland.

There’s a lot of capital floating around, and real estate will typically gain in proportion to the allocation of assets. As of the 3rd quarter 2022, the cross-border real estate transactions throughout the globe were estimated to be more than 60 billion US dollars. The Americas region was the top source for international real estate investments, with close to 15.6 billion US dollars.

This is in line with a trend of increased transactions through 2021 in several countries, the economic impact of the pandemic being ignored. In Germany alone the volume of office transactions reached 28.2 milliards euros corresponding approximately 1/3 of European transactions.