Ladder or snake?

A decade after the Global Financial Crisis, where next for residential property prices?

February 2020

This report looks at how residential property prices and yields, across a total of nine primary (Paris, London, and New York City (NYC) and secondary (Berlin, Barcelona, Lisbon, Zurich, and Geneva) cities, have evolved over the past decade. In doing so, it addresses vital questions.

  • Have prices plateaued or can they still continue their ascent?
  • What factors have driven the financialisation of residential property?
  • How have residential property prices, across primary and secondary cities, evolved over the past decade in terms of affordability?
  • What factors can put a brake on, or decrease residential property prices? And, what are the consequences for banks?

Our key findings

More than 10 years after the Global Financial Crisis, residential property prices are hitting new highs. Is this a "new normal"? Or, as with the pre-Global Financial Crisis property price rises, is this a bubble waiting to burst?

The aftermath of the Global Financial Crisis and the need to repair consumer and bank balance sheets has led to an unprecedented period of low rates. We are now a decade on from 2009, yet rates in most developed nations, bar the US, hover near historic lows. The current bout has ended, as the Chair of the US Federal Reserve (the Fed), Jeremy Powell, acknowledged that trade policy uncertainty has slowed global growth, and that monetary policy can help offset that. 

Exceptional credit conditions – ultra low interest rates and longer duration mortgages – have been the primary driver of increased residential property prices. Whilst in the immediate aftermath of the Global Financial Crisis, residential property prices declined. This decline was fleeting, as central bank stimulus (ultra-low interest rates, large scale asset purchases etc.) later reinvigorated the residential property market.

The confluence of the ability to earn higher yields (through accommodation booking sites like home sharing platforms, etc.) and cheap money have led to residential housing increasingly being seen as an investible asset rather than simply a place to live. This has contributed to a house price boom across both primary and secondary cities. This has not been a universally happy experience. Rising prices have cut more would be owners out of the market, while home sharing platforms have been accused of reducing the availability of long term rentals for local residents.

Several factors influencing both demand and supply raise questions about the sustainability of residential property prices.

Looking ahead

Will residential property prices continue to be higher for longer? We believe that a confluence of factors will rein them in.

Societal changes – low affordability, further exacerbated by the rise of the alternative workforce, will likely drive further governmental interventions and increased regulation.

Climate change – with consequences for how residential property is valued (by taking into account risks such as flooding, heat waves, degradation of the air quality, etc.)

Ageing populations (in Europe and China) – which is likely to decrease the demand for housing.

Economic contraction risk – with consequences for banks’ lending capacity.

Deloitte expert viewpoint

The softening of the London property market, especially at the top end, has occurred despite a substantial depreciation in sterling after the Brexit referendum, which has made UK assets cheaper for foreign buyers.

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