As interest rates climb, the global housing market is surprisingly stable

Published on26 MAY 2023

The global housing market seems to be stabilizing faster than expected despite months of rising mortgage rates, according to Goldman Sachs Research.

House prices are defying expectations and are rising in major economies such as the U.S., Australia and Canada, our economists Joseph Briggs and Giovanni Pierdomenico write in a new report. House sales, which also declined with rate increases, are beginning to stabilize too, they write.

“A surge in mortgage rates has led to a sharp housing market pullback in most major economies since mid-2022, but the global housing market is showing some early signs of stabilizing,” Briggs and Pierdomenico say. “House prices [are] leveling out more quickly and at a higher level than would normally be expected given the rapid rise in mortgage rates.”

Housing is one of the most sensitive sectors of the economy to interest rates, and the recent tightening cycle looked like it would play out as expected: rising rates typically cause a sharp decline in global housing activity and a more drawn-out effect on house prices, according to our economists.

However, house sales and prices in major economies seem to be recovering at a surprisingly fast pace, Briggs and Pierdomenico say. In fact, house prices have been rising over the last two months in Australia and Canada.

Our economists put this faster-than-expected stabilization down to two potential explanations. First, the lag from higher interest rates on house prices may be shorter than expected. For example, the upturn in house prices in Canada and Australia did indeed align with the pauses in hikes from their respective central banks, which bodes well for other countries planning to pause hikes later this year.

Second, there are several structural factors that could be alleviating the slump across the housing market this cycle, Briggs and Pierdomenico say. These include low housing supply, with vacancy rates at very low levels in most countries; strong household balance sheets or excess savings following Covid-19; and a post-pandemic recovery in immigration that is lifting housing demand. This last dynamic appears especially important in Canada and Australia, where immigration and population growth have rebounded strongly.

Despite optimistic signs, Briggs and Pierdomenico are cautious. There is still a lot of uncertainty surrounding higher mortgage rates and the possibility of further rate hikes, they say. “Our relatively hawkish rates forecasts and the possibility that we haven't seen the full impact of higher mortgage rates suggest that the risks to house price growth remain to the downside in most countries,” Briggs and Pierdomenico say. “But the recent data and our findings suggest that this risk may be somewhat more limited than historical relationships and models imply,” they conclude. 

This article is being provided for educational purposes only. The information contained in this article does not constitute a recommendation from any Goldman Sachs entity to the recipient, and Goldman Sachs is not providing any financial, economic, legal, investment, accounting, or tax advice through this article or to its recipient. Neither Goldman Sachs nor any of its affiliates makes any representation or warranty, express or implied, as to the accuracy or completeness of the statements or any information contained in this article and any liability therefore (including in respect of direct, indirect, or consequential loss or damage) is expressly disclaimed.

Explore More Insights