A global house-price slump is coming

Over the past decade owning a house has meant easy money. Prices rose reliably for years and then went bizarrely ballistic in the pandemic. Yet today if your wealth is tied up in bricks and mortar it is time to get nervous. House prices are now falling in nine rich economies. The drops in America are small so far, but in the wildest markets they are already dramatic. In condo-crazed Canada homes cost 9% less than they did in February. As inflation and recession stalk the world a deepening correction is likely—even estate agents are gloomy. Although this will not detonate global banks as in 2007-09, it will intensify the downturn, leave a cohort of people with wrecked finances and start a political storm.

The cause of the crunch is soaring interest rates: in America prospective buyers have been watching, horrified, as the 30-year mortgage rate has hit 6.92%, over twice the level of a year ago and the highest since April 2002. The pandemic mini-bubble was fuelled by rate cuts, stimulus cash and a hunt for more suburban space. Now most of that is going into reverse. Take, for example, someone who a year ago could afford to put $1,800 a month towards a 30-year mortgage. Back then they could have borrowed $420,000. Today the payment is enough for a loan of $280,000: 33% less. From Stockholm to Sydney the buying power of borrowers is collapsing. That makes it harder for new buyers to afford homes, depressing demand, and can squeeze the finances of existing owners who, if they are unlucky, may be forced to sell.