Housing markets facing 10% drop

"Equities and housing move in sync with interest rates".

Global housing markets will face significant declines this year and next as interest rates stay high, according to Harvard University Professor Kenneth Rogoff.

The former International Monetary Fund chief economist, speaking on Bloomberg Television at the World Economic Forum in Davos, suggested that borrowing costs are likely to keep rising a bit further to quell inflation, further depressing real-estate prices. 

“Equities and housing move in sync with interest rates — but equities move much faster,” he told Lisa Abramowicz. “If, as I think, interest rates are going to stay high for some time to come, I think there’s still a lot of downward adjustment in housing markets globally, not just in the United States.” 

Asked for a more precise outlook on the drop in real-estate prices, Rogoff predicted “certainly another 10% I would think, over a couple of years.”

With benchmark borrowing costs rising throughout the world, housing markets from Canada to Sweden have gone into sharp reverse with no sign of a letup. The pressure on housing markets is likely to persist as global central banks keep monetary policy tight, led by the US Federal Reserve.

“Inflation will eventually come down — maybe just to 2.5%, not to 2% — but interest rates aren’t going to come down to the same level as they were before,” Rogoff said. “I wouldn’t be surprised to have a Fed funds rate of 3.5% for quite a while from now.”

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