The latest analysis from property consultancy Knight Frank has revealed a significant deceleration in house price growth across major global cities.
The annual growth rate slowed to 2.6% in Q2 2024, a notable drop from the 4.1% seen in Q1. This current rate is also well below the long-term average of 5.3%, indicating that further reductions in interest rates may be necessary for the market to regain momentum.
Affordability concerns curtail growth
Knight Frank’s data underscores the challenges faced by many housing markets, with affordability increasingly becoming a constraint. As prices rose by just 2.6% in the 12 months leading up to June, compared to 4.2% in the previous 12-month period, it’s clear that many buyers are hitting the limits of what they can afford. Higher mortgage costs, driven by increased interest rates in late 2022 and early 2023, played a major role in slowing growth.
While mid-2023 saw a slight recovery as earnings growth outpaced house price increases, the slowdown in Q2 points to the need for lower borrowing costs if markets are to pick up again.
More markets facing price declines
A rising number of global housing markets are now experiencing price drops. In Q4 2023, 18% of markets saw annual price declines, but this figure rose to 25% by Q2 2024. Furthermore, the number of markets with strong growth—those seeing price increases of more than 5%—has plummeted. Only 13% of markets reported such growth in Q2, down from 32% in Q1.
Notable markets, such as Madrid and Dubai, have contributed to this rapid deceleration. Madrid’s annual growth tumbled from 17.2% in Q1 to 6.4% in Q2, while Dubai, which saw a 15.9% increase in Q1, experienced a slight decline of 0.3% in the second quarter. Despite a 124% surge in prices since 2020, Dubai’s market is taking a much-needed breather after years of exceptional growth.
Regional variations and future outlook
Interestingly, Europe has been leading the charge in market recovery. Six of the ten fastest-improving markets are in Europe, with Stockholm showing the most progress. While house prices in Stockholm remain down by 2.6% year-on-year, this is a vast improvement from the -6% recorded in the previous quarter. On the other hand, New Zealand’s cities, including Christchurch, Wellington, and Auckland, are among the markets where growth has slowed.
Liam Bailey, Knight Frank’s global head of research, emphasised that future price growth depends heavily on central banks. “Without further stimulus from rate cuts, the bounce in market pricing we’ve seen in recent quarters is running out of steam. The biggest influence on future price growth now lies in the hands of central banks and their willingness to reduce rates over the next 12 months,” Bailey commented.