Global house prices shrug off higher interest rates

Global house prices continue to rise despite central banks' efforts to combat inflation through higher interest rates. Knight Frank’s Global House Price Index covering 56 key markets rose 3.5% during the year to September, up from 2.2% the previous quarter.

Limited stock availability, increased household savings, and robust wage growth are all underpinning values. Indeed, wage growth is now outpacing inflation in some countries, including the UK.

Transaction volumes present a different challenge. Sales have declined by 15% to 25% from their recent peaks across developed economies. Remarkably, values remain 3.5% above their previous peak, and the absence of a correction suggests that sluggish activity is likely to persist through 2024 and potentially well into 2025. Activity is anticipated to rebound only when rates are lowered substantially.

It's hard to know exactly when that will be, but we'll know more tomorrow night than we do this morning. The Federal Reserve will be the first of the major western central banks to publish rate decisions later today, followed by the European Central Bank and the Bank of England tomorrow. The Fed will also publish the latest dot plot recording each official's projection for the federal funds rate. Economists surveyed by Bloomberg expect the median projection will show two rate cuts next year and five more in 2025.