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Home prices are rising globally, but can wages growth keep up?

House prices have been rising around the world at the fastest rate in 30 years, however some countries might run into problems if wages growth can’t keep up, an expert has warned.

Asset management firm Franklin Templeton, notes house prices have been rising globally over the past 12 months, thanks to a combination of low interest rates and monetary stimulus.

Franklin Templeton’s Chief Market Strategist and Head of Franklin Templeton Investment Institute, Stephen Dover, says global housing prices are growing at a rate not seen in 30 years.

“Home prices are rising globally. In the first quarter of 2021, the average annual nominal house price growth accelerated to the fastest pace since 1990 across the Organisation for Economic Co-operation and Development’s (OECD’s) 37 advanced economies.”

“Many nations’ government responses to the pandemic included fiscal stimulus payments and ultra-low interest rates, fuelling an estimated US$2.2 trillion dollars of excess US household savings and lower mortgage costs for home ownership while raising the US median price of a home.

“In April 2021, the sale price of the median home increased to a record high of US$341,600, a 19.1 per cent year-over-year increase. However, the number of US home sales dropped -2.7 per cent to 5.85 million, the third straight month of decline.”

Mr Dover pointed out that while house price growth is considered good inflation, buyers will need to be careful what they wish for.

“Steadily rising prices often reflect a country’s economic growth and health. With real estate being the greatest source of wealth for many families, this may be a type of ‘good inflation’ that is consistent with improving prospects for households.

“One key metric to watch is whether employment and wage trends keep up with these inflationary forces. If not, the home price rises may not feel so ‘good’ anymore.”

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