Rising interest rates hit housing markets around the world


If you had to choose one industry in America to feel the effects of the Federal Reserve’s rate hikes, it would be housing. Existing home sales are down 28% since last year, according to the National Association of Realtors, an underwriter in the market.

The point is that we are not the only country battling inflation. Central banks from Canada to Western Europe and Latin America are also raising interest rates. What does this mean for their housing market?

The past two decades have seen a housing boom in Canada. A house in Toronto or Vancouver is at least as expensive as a house in New York or San Francisco. And since the pandemic, prices have increased by more than 50% in some markets.

But recovery is on the way, says Tony Stilo of Oxford Economics. “We are looking at a 30% fall in house prices across the country. It’s already going well.

The Bank of Canada, together with the Fed, has raised interest rates sharply. But unlike the fixed 30 years in the US, Canadian mortgages only hold interest for five years. And variable rate mortgages are very popular in Canada.

As interest rates rise, Stilo said, Canadian homeowners will feel the bottlenecks more directly than their American neighbors. He predicts a moderate recession.

“We think the economy is more sensitive to these rate hikes,” Stilo said.

The European Central Bank is also raising interest rates, meaning even the hottest housing markets are cooling down.

“In Northern Europe, in parts of Germany and in parts of the French market, we are seeing a slowdown,” said Nicolas Veron, an economist at the Petersen Institute for International Economics.

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As monetary policy slows demand, Verone said immigration could be a countermeasure. For example: “Large numbers of immigrants are arriving in many places in Germany. If many people enter the country and want a place to live, the demand for housing will increase.”

Immigration and remote work are also helping to boost the housing market in some parts of Mexico.

“Cities like Monterrey or Reynosa or Tampico, cities close to the border,” said Marisela Pereira of the Mexican Association of Real Estate Professionals. “And all these people who live in the United States are interested in shopping here in Mexico.”

Pereyra said Mexicans are increasingly interested in renting versus buying. The country’s central bank recently raised its reference rate to 10%.

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