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Housing Affordability Under Pressure in Many Advanced Economies

This commentary evaluates the present day housing affordability situation on a historical basis across six advanced economies. For the purposes of our analysis, we looked at Australia, Canada, the Netherlands, Sweden, the United Kingdom (U.K.), and the United States (U.S.). Each of these countries has experienced a substantial run up in housing prices over the last few years.

Key highlights include:
• With housing prices at historically high levels in a number of advanced economies, rising interest rates have a significant adverse effect on the affordability of home purchases.
• Housing prices have already begun to decline from historical peaks, but are still up considerably relative to pre-pandemic levels. The limited supply of housing is likely to put a floor under housing prices, but rising housing costs are likely to cut sharply into consumer demand.
• Uncertainty on how households and housing prices will respond to rising interest rates adds to the risks of policy errors on the part of central banks.

“In most of these countries, the pace of housing construction has been well below the pace of population growth for several decades,” notes Thomas Torgerson, Co-Head of Global Sovereign Ratings for DBRS Morningstar. “Higher interest rates bode poorly for consumer demand growth but are unlikely to lead to a major collapse in housing prices.”