Property in America appears better insulated from rising interest rates than many other large economies
is in full swing and the spectre of global recession looms. But you wouldn’t know it by looking at the rich world’s housing markets, many of which continue to break records. Homes in America and Britain are selling faster than ever. House prices in Canada have soared by 26% since the start of the pandemic. The average property in New Zealand could set you back more than NZ$1m , an increase of 46% since 2019 .
Homeowners’ vulnerability to sharp rises in mortgage payments varies by country. In Australia and New Zealand, where prices jumped by more than 20% last year, values have got so out of hand that they are sensitive to even modest rises in interest rates. In less torrid markets, such as America and Britain, interest rates may have to approach 4% for house prices to tank, reckons Capital Economics, a consultancy.
The structure of mortgage debt—the second factor—also matters. Rising interest rates will be felt almost instantly by borrowers on variable rates, which fluctuate with changes in policy rates; for those on fixed rates, the pain will be delayed. In America mortgage rates tend to be fixed for two or three decades. In Canada nearly half of home loans have rates that are set for five or more years. By contrast lending in Finland is almost entirely priced at floating rates.
Watchdogs in Europe are equally worried. In February the European Systemic Risk Board warned of unsustainably high mortgage debt in Denmark, Luxembourg, the Netherlands, Norway and Sweden. In Australia, homeowners’ average debt as a share of income has swollen to 150%. In all these countries households will face jumbo monthly repayments just as soaring food and energy costs eat into incomes.