Housing market: what should we expect by 2024?

1 November 2023 Blog

Brick in Italy: let’s define the context

Italians have always had faith in bricks and mortar, have always considered it the ultimate “safe haven asset,” and despite the downturn in the housing market, Italians are not losing faith in investing in real estate.

Nomisma’s 16th Housing Finance Report tells us that about 3.1 million households are intent on buying a home in the next 12 months, 14 percent of them for investment purposes. This is because many families living in rented housing, about 56 percent, consider this a forced choice, if not the only one possible due to lack of sufficient economic resources.

This fact is also confirmed by Nomisma’s 3rd Observatory on the Real Estate Market 2023, in fact we read that “The slowdown in the Italian real estate market, which had begun to manifest itself starting in the second half of 2022, became progressively more intense during the course of this year and now threatens to extend into next year.”

Despite this dark period for the real estate market, choosing to buy a home is still considered an affordable option for many, of course, however, one must pay attention to certain aspects to see if it is really worth it:

starting budget: having a good starting amount to invest in buying a home turns out to be the most sensible choice if you do not want to resort to a mortgage.
choice of area: think of an area that might be attractive to students, workers and tourists.

Real estate bubbles and country revaluation

In order to explain which areas are most likely to be considered desirable for the housing market, it is worthwhile to first talk about a fundamental concept in the world of real estate: real estate bubble. This is an economic condition whereby there is an exponential growth in the price of real estate, followed by a dangerous fallout that causes serious consequences for the entire market. Said like that, it sounds simple makes you understand, but we explain the dynamics of the bubble through an example:

Imagine you are at anauction where collectible toys are being sold. At first, the price of these toys is reasonable and some people start to buy them because they are appreciated and desired; as time goes on, however, the demand for these toys increases and many more people want to buy them. Some begin to offer higher and higher prices, driven by the idea that their value will continue to rise. This triggers a ripple effect : more people participate in theauction, prices continue to rise, but the real value of the toys no longer justifies these high prices.

At some point, the price becomes so high that people begin to question whether it is really worth spending so much on a toy. Some buyers stop participating in the auction because the prices seem unreasonable compared to the real value of the product. This slows demand, and prices begin to stabilize or even fall. This is what happens with the housing bubble.

The UBS Global Real Estate Bubble Index 2023 study tells how the housing market has been strongly influenced by rising interest rates over the past 10 years. In fact, house prices rose a lot when rates were low, but fell a lot when rates rose; of course, this situation changes from city to city, depending on different factors (affordability, rents, loans, profitability). Here we tell you some examples of those reported.

Cities at highest risk

Zurich and Tokyo have a high risk index for the real estate bubble, here prices have collapsed by 15 percent, but the two cities had the highest risk scores in 2022. They are two metropolises where real estate is highly overvalued.

In the former, Zurich, the ratio of purchase prices to rents is unbalanced: housing costs are up 40 percent from a decade ago, while rents are up 12 percent. This suggests that people are more likely to invest in buying property and not in renting. Tokyo, on the other hand, over a period of 20 years has seen the housing market transform from the most undervalued to the most overvalued.

The list of cities with overvalued homes continues with two U.S. metropolises, Miami and Los Angeles, there is also Stockholm and then followed by major European cities such as Munich, Paris, London, Frankfurt, Amsterdam and Geneva, which remained at the same levels as last year.

Low-risk cities

At the lower end of the Ubs report we find cities such as New York and Milan. This figure may come as a bit of a surprise, but we will now explain:

In NY, the pandemic has led people to move to places far from downtown where they can comfortably do smart work, resulting in a drop in real estate prices.

The Milan real estate market has seen price growth since 2018, and this has been the case for 2022 and mid-2023, but the point is that prices have not kept up with inflation. Despite this situation, the outlook for Milan ‘s economy is positive, this is because there are several facts at play: theincrease in GDP, the transportation network is being developed, and there will also be the 2026 Winter Olympics.

What lies ahead?

In this changing environment, withvarying market trends in different cities, it remains crucial to take a prudent approach and carefully consider economic indicators and market trends in order to make informed and forward-looking decisions in real estate investment. If you, too, have invested in bricks and mortar, have a house to rent but don’t have time to manage it all, then turn to Travel Inside: we will manage your property as if it were our own, taking care of the search and reception of clients, payments and paperwork, and cleaning services. Curious to know more? Contact us and find out how to enhance the value of your property.