US housing market
FREDERIC J. BROWN / Contributor/Getty Images
  • Global home prices rose 7.3% in the year to March, according to the Knight Frank Global House Price Index.
  • That's the fastest price growth since 2006 and comes as some nations look to cool their housing markets.
  • Turkey, New Zealand, and Luxembourg saw the largest jumps, while prices fell in India and Spain.
  • See more stories on Insider's business page.

It's not just the US housing market that's on an absolute tear.

Home prices around the world are surging as strong demand squares off against strained supply. The average home price across 56 countries and territories rose 7.3% in the year to March 2021, according to the Knight Frank Global House Price Index. The jump marks the fastest rate of global home-price inflation since late 2006. Thirteen countries registered double-digit increases, and developing nations made up most of the top-ten gainers.

Turkey saw the largest price increase over the period, notching a 32% year-over-year bounce. New Zealand and Luxembourg followed with 22.1% and 16.6% increases, respectively.

The US registered the fifth-largest jump, with prices climbing 13.2% in the year to March. That marks the fastest rate of price growth since early 2005.

Government responses to the COVID-19 crisis are partially behind the international housing boom. Central banks around the world slashed interest rates in March 2020 which quickly dragged borrowing costs to historic lows. Couple the ultra-easy monetary policy with trillions of dollars in fiscal stimulus, and demand quickly outpaced supply across several markets.

What began as a surging sales pace has since turned into a red-hot housing boom. Supply shortages have hindered a pick-up in construction activity, leaving prices to surge as demand holds strong.

With home inventories under incredible pressure, some countries are moving to cool markets down before prices skyrocket further. Officials in China, New Zealand, and Ireland have used a range of tools to rein in home inflation, including new residential taxes and stricter lending policies.

"With governments taking action and fiscal stimulus measures set to end later this year in a number of markets, buyer sentiment is likely to be less exuberant," Knight Frank said in the Thursday report. "Plus, the threat of new variants and stop/ start vaccine roll-outs have the potential to exert further downward pressure on price growth."

Not all large-scale economies face overheating housing markets. Prices contracted 1.8% in Spain and 1.6% in India in the year to March, according to the Thursday report. Such declines were likely powered by strict lockdown measures and excess supply, Knight Frank said.

How to cool a red-hot market

Housing indicators in the US suggest the market tightness will last for a while longer. Home starts slid nearly 10% in April as soaring lumber costs and lot shortages cut into the supply rebound. Roughly 20% of contractors said in an April survey that they were delaying construction and sales, possibly due to squeezed profit margins.

Economists surveyed by the Urban Land Institute expect homebuilding to accelerate over the next few years as firms look to service outsize demand. The increase in home inventory should help price growth cool; The economists see home-price inflation returning to its pre-pandemic average of about 4% in 2023.

Still, the forecasts see demand outstripping supply into the mid-2020s. Unless the trend changes, millennials risk being priced out of the US housing market just as they reach their peak buying age.

Read the original article on Business Insider