Amid the ongoing short-term economic turmoil over elevated fuel and fertiliser prices, long-term structural challenges are taking shape globally. One of these is a global slump in real estate prices. In the immediate aftermath of the covid pandemic, governments cut interest rates and loosened credit to offset the impact of the crisis on jobs and the economy. Real estate prices soared across the globe. However, over the past couple of years, homeowners in New Zealand, China, and the UK have been facing a moment of reckoning. Policymakers always worry about real estate slumps because, as in the US in 2008, they can signal a broader economic crisis.
Double whammy
Home prices soared globally after the loosening of economic purse strings during the covid crisis. However, the subsequent increase in interest rates, as central banks attempted to reverse the monetary loosening of previous years, caused housing markets to fall, and mortgages to become more expensive. House prices in several countries are now well below their peak. The increase in also means higher monthly loan instalments.
At the same time, housing prices, despite being off their peaks, are still too high to be considered affordable for the average household. According to a UBS report in late 2025, “buying a 60-square-meter (650-square-foot) apartment is beyond the budget of the average skilled service worker in most global cities”. Buying such a property in Hong Kong requires 14 years of average income for the city. In London, that number is 12 years. The Iran war has made an immediate fall in interest rates, which would make mortgages cheaper, unlikely.
Chinese checkers
In China, the slump has not only led to sharply declining house prices but also the collapse of major property developers like Evergrande. Economists are drawing parallels between the Chinese real estate market today and Japan’s economy in the 1990s, which remained in a slump for decades after that crisis.
In contrast to most countries, the Chinese real estate crisis was triggered by intentional policy. The government recognised that the real estate boom, built over decades as the country’s runaway growth created new housing demand, had turned into a bubble. The correction has been painful. A recent paper by economists Kenneth Rogoff and Yuanchen Yang points out that, since housing accounts for 70% of household wealth in China, such an extended decline, now lasting over six years, would have impacted wealth and consumption. “While China’s challenges are unique, the combination of a housing boom-to-bust transition, a slowing economy, an ageing population, and growing external pressures echoes Japan’s experience in the 1980s,” say the authors.
Indian slowdown
Indian s, too, have been showing signs of softening. According to Knight Frank, “the market has begun showing signs of losing steam,” with sales falling 4% in the first quarter of 2026, compared with Q1 of 2025. The hardest hit segments have been in smaller ticket sizes, which have been the main cause of the overall decline.
In contrast, sales in ticket sizes above ₹1 crore have increased. “Market activity remained skewed toward the higher end even as growth moderated, while volumes continue to slide in ticket sizes below ₹10 million ( ₹1 crore),” says Knight Frank.
The inventory of unsold houses is rising as well. Overall, it will now take six quarters of sales at the current pace to clear the current unsold inventory, up from 5.9 quarters a year ago. “While the movement appears marginal in isolation, it reflects the compounding effect of moderating sales and sustained new supply additions,” said Knight Frank.
Affordability issues
The US has not seen the kind of dramatic property price declines seen in other developed markets, but growth is definitely slowing. Adjusted for inflation, US home prices as a whole have moderated from their peak, but they are still up in real terms compared with March 2020. The S&P Cotality Case-Shiller US National Home Price Index, an index of home prices not adjusted for inflation, shows that the year-on-year change in home prices in nominal terms has slowed sharply.
The fact that US home prices are still high again brings up the issue of affordability. A recent study by the National Association of Realtors, reported by NPR, found that in 2019, a family earning enough income to afford half of all home listings in the country could currently afford only a quarter of those listings. The current US administration has made affordable housing a key policy priority. But again, sharp falls in house prices, which will improve affordability, come at the cost of hitting the wealth of current US homeowners.
Home loan relief
A key aspect of affordability is home loan interest rates. On that score, there is some good news in India. A couple of years ago, began to rise sharply. At their peak, in late 2023, they were almost 2 percentage points higher than in early 2021. Faced with sharply rising EMI costs, borrowers were forced to either extend the tenure of their loans, keeping the EMI constant (which would have led to substantially higher interest over the course of the loan), or bite the bullet and take the hit of a higher EMI now. While average home loan rates are still higher than in 2021, they have moderated substantially to just below 8 percentage points.
Yet it’s debatable what impact this belated fall in home loan interest rates will have on household budgets, given that the cost of critical items like fuel and transport has risen sharply due to the ongoing US war with Iran.