Mexico City. The IMF shows that compared with high-income economies, Mexico’s house price growth is ahead of pre-pandemic levels, becoming the second country with the largest house price growth in 2023 alone, behind only the United Arab Emirates International ( International Monetary Fund).
“Housing affordability remains limited in a rising interest rate environment. Potential homebuyers face high house prices and high borrowing costs, while owners are reluctant to sell their properties,” the organization explained, referring to the global housing market backdrop. “
Data from the International Monetary Fund shows that housing prices in Mexico are up 8.44% from pre-pandemic levels, trailing only Israel, where housing costs have soared 23.69%; Portugal (22.29); United States (19.15); Japan ( 15.29), the Netherlands (14.4), the United Arab Emirates (14.15) and Australia (9.24%).
In 2023, house prices actually increased in only seven countries, with Mexico in second place with an increase of 4.72%. In the United Arab Emirates, the increase was 10.39. Other countries that also saw housing costs rise last year include Israel, Portugal, Thailand, Japan and Malaysia.
“As central banks around the world have raised interest rates to control inflation, house prices have cooled relative to the start of the upcycle. However, despite the residential market’s sensitivity to higher policy rates, prices remain above historical averages,” the IMF said in a statement wrote on his blog.
The agency warns that this credit appreciation will also be transferred to rental costs. “Many people prefer renting to buying as average house prices adjust slowly. In this context, the combination of higher interest rates and a still-scarce housing supply creates a vicious cycle that makes the central bank’s fight against inflation even more Complex,” he explains.
The International Monetary Fund said housing affordability is further constrained while house prices remain elevated and interest rates rise. He added that the cost of household debt is likely to rise, especially “if the housing market is overvalued and the average mortgage life is shorter”.
In the United States, for example, the Federal Reserve’s interest rate hikes have shaken the mortgage market; the average interest rate on a 30-year fixed mortgage recently reached 7.8%, the highest level in two decades. These costs put it “further out of reach” for potential buyers “as savings have declined since the pandemic and the required down payment has become a prohibitive factor.”
The average U.S. 30-year mortgage rate is currently 6.6%, about 3 percentage points higher than the lows during the epidemic, which has resulted in mortgage loan originations being 18% below last year’s levels. While mortgage refinancing applications increased by 8.5% last year, interest rates continue to fall.
The International Monetary Fund emphasized that if the Federal Reserve begins to cut interest rates this year, as the market and experts predict, mortgage rates will continue to adjust and pent-up housing demand may be released. However, “sudden growth from rapid interest rate cuts could offset any improvements in housing supply, causing prices to rebound.”