When COVID-19 brought the UK economy to a standstill in 2020, the government stepped in to help the property market by reducing a tax on purchases. The temporary measure sparked a frenzy of sorts among shoppers, who responded by driving up average prices by £31,000 ($35,000), more than double the maximum tax saving.

The frenzy echoed the buildup to the property price slump that began in the late 1980s, when the government announced it would cut tax relief for couples buying property, leading to an increase demand. The fall that followed was brutal, as the market took almost nine years to return to its previous peak.

The housing market now faces similar challenges, according to Simon French, chief economist at investment bank Panmure Gordon, who predicts a 14% drop in house prices over the next three years. This would bring values ​​back to 2013 levels in real terms. Bloomberg Economics expects values ​​to fall around 10% next year.

It’s not just in the UK that property markets are reporting slowdowns of 30 years ago.

The big losers at the time – which included Australia, Canada and Sweden – have all seen house prices hit record highs in recent years as cheap credit has made home ownership possible even then. values ​​were skyrocketing. But now they face a settling of scores as central banks struggle to quell inflation.

This means interest rates are rising rapidly, ending the easy money era that has defined the years since the global financial crisis of 2008. There are also implications for household wealth and economic growth. at a time when the risks of recession are already hanging over many countries.

“There are parallels between today and yesterday,” said Manoj Pradhan, founder of research firm Talking Heads Macroeconomics and a former Morgan Stanley economist. But soaring inflation means “things could be much worse. The overall increase and level of debt is quite high compared to that time. Sensitivity to rising interest rates is enormous.

Here’s a look at some of the key developments past and present in countries where real estate is at risk or already in recession.


Drive from Toronto’s main airport towards the slowdown and you’ll pass rows of apartment buildings developed in the easy money era.

This echoes the boom of the 1980s in the city, driven by condo speculation, which ended suddenly, leaving prices to plunge. Then, as now, inflation was on the rise and interest rates had to rise sharply to combat it. In 1990, mortgage rates exceeded 13% and Toronto’s housing market collapsed for years. Sales fell and prices only bottomed out in 1996 after losing more than a quarter of their value.

Today, the economy is doing better. But after 25 years of almost uninterrupted price increases, Toronto looks shaky again. Affordability is as bad as it was during the bubble of the late 1980s, according to the National Bank of Canada. The Royal Bank of Canada’s economics department calls it a “historic correction” and says national home resale volumes could fall more than they did in the early 1990s, from peak to trough.

The most frenzied speculation this time around was in the suburbs and outlying towns near Toronto that people flocked to when COVID hit, in search of more space.

There, the correction came quickly. In the towns of Kitchener and Waterloo, Ont., about a 90-minute drive west, the benchmark price has fallen 16% in six months. In Oakville and Milton, two closer suburbs that are home to many financial professionals, they fell 14%.

But prices are still significantly higher than they were before the pandemic, so there could be more declines to come.


Images of unfinished housing blocks symbolize the grim state of Chinese real estate, where buyers are paying for homes they cannot occupy. This has led to a mortgage boycott this year, with buyers threatening to stop paying.

About 2 million unfinished homes pre-sold by developers have halted construction, according to estimates by S&P Global Ratings. It recalls the bankruptcy of a property 30 years ago on the island of Hainan, the country’s tropical resort island nicknamed “China’s Hawaii”.

Property developers appeared there in the 1980s after it became one of the first regions in China to liberalize its economy, attracting migrants seeking employment. This in turn boosted housing demand, creating the country’s first batch of real estate entrepreneurs, including Soho China founder Pan Shiyi.

House prices more than tripled between 1989 and 1992, but the boom imploded the following year after Beijing tightened monetary policy and lent to the sector. More than 600 buildings were left derelict, local media reported at the time.

China has pursued similar policies to contain its boom over the past three years. Funding has been cut and the government has asked banks to slow the pace of mortgage lending. This sparked a wave of defaults and left millions of square feet of buildings unfinished.

In 1999, the Council of State intervened to help solve unfinished projects, in particular by transforming part of them into subsidized housing for low-income workers. The government has turned to the playbook again, offering 200 billion yuan ($28 billion) in special loans to guarantee the delivery of stalled housing projects.

According to George Magnus, a research associate at the China Center at the University of Oxford, the underlying fundamentals look “rather gloomy for the foreseeable future”.

“We could have a real estate bust,” he said. “China has joined the rest of the world in experiencing ownership issues.”

While many economists say the crippling housing slump won’t get much worse and the recovery will begin this year or next, few are calling for a sharp rebound. But political changes, along with a gradual easing of COVID restrictions, may help the market find a floor.


Australia has seen a sharp rise in property prices during the pandemic, but the central bank raised its benchmark interest rate by 250 basis points within months, and the market reversed.

Values ​​are falling faster than they were in the early 1980s and early 1990s recessions, according to Tim Lawless, research director at CoreLogic.

The company’s Combined Capital Index, which includes the value of homes in Australia’s eight capitals, has fallen 5.5% over the past five months. During the same period of the 1990s downturn, home values ​​fell by 2.9%. It’s even worse in Sydney, where prices have fallen for eight straight months and are now 9% off the peak.

“In 1994 we had the fastest rise in interest rates,” said Paul Cameron, senior economist at real estate firm PropTrack. “We’ve seen sort of two housing market downturns – one after the 1989 price boom and the other after the interest rate hike. At the moment, we have those two scenarios.

A concern in Australia, and echoed in other economies as well, is strained household finances. The debt-to-income ratio is 187%, down from around 70% in the 1990s.

“You could say that households are much more sensitive to the cost of debt now than they were in previous recessions,” Lawless said, though he stressed the economy remains strong, as does the economy. ‘use.


Similar dynamics are at play in Sweden. Real estate continued to boom during the pandemic, but that changed after interest rates rose from zero to 1.75% this year.

House prices are falling — at a record pace by some metrics — and highly leveraged commercial property companies are coming under pressure from rising rates, which has parallels to the financial crisis of the 1990s.

At the time, rising rates burst a commercial real estate bubble fueled by credit deregulation. The collapse, which rippled through the financial sector, plunged Sweden into a crisis that would see public debt and unemployment soar, and force the government to take control of struggling private banks.

Although policymakers are worried, there are factors that could prevent events from spiraling out of control in the same way. The indebtedness of commercial property owners is well below the levels of the early 1990s, which followed a period of unbridled credit expansion.

But at the same time, household borrowing is a huge risk, with debt-to-income ratios around 200%, down from around 150% before the global financial crisis.


The British government again reduced the stamp duty rate to support the market.

This was announced as part of a major tax giveaway (some of which was later reversed) that threw UK markets into turmoil. Bond yields jumped, contributing to soaring mortgage interest rates, and a number of lenders even pulled mortgage products from the market.

This context will make it difficult to encourage demand, which, according to the real estate portal Zoopla, has fallen by 20% since the so-called mini-budget, leaving it at its weakest since the start of the pandemic.

‘Sharp repricing of mortgages – with rates not seen in over a decade and a sharp deterioration in affordability’ may ‘shock buyers and freeze real estate activity until rates at least normalize a bit and buyers readjust their expectations,” said Iwona Hovenko, Bloomberg Intelligence European real estate analyst.

Broker Hamptons International warned ahead of the stamp duty cut that house prices would likely fall if the Bank of England base rate rose above 2.5%. It is already at 2.25% and should reach at least 3% early next month. The average 5-year fixed rate mortgage hit a 14-year high this month.

“Rather than a credit crunch, the current shock is more like the one that occurred in the early 1990s when interest rates soared, house prices fell and the recovery was slow,” said Niraj Shah, an economist at Bloomberg Economics.

And the capital is now showing signs of trouble. Prices are more than £4,000 lower than their peak in February, according to researcher Acadata, and values ​​are falling in 10 of the city’s 33 boroughs.

“Property is another asset that will suffer globally from the damage inflicted by the Fed and other central banks,” said Hugh Hendry, real estate investor and former hedge fund manager. “Stressed investors will clear out, prices will slump.”