In 2021, the global housing market will be largely in a price bubble.

Urban home prices increased globally at their fastest rate since 2007, with Turkey leading the way at 7.4%.

According to the most recent Global House Price Index from international real estate broker Knight Frank, urban house prices globally are increasing at their fastest rate since 2007. Of the 150 cities they monitor, 43 are currently recording annual price growth above 10%.

Cities do not appear to be performing worse than their respective national housing markets; rather, both appear to be advancing simultaneously, as Knight Frank noted in their Global House Price Index last month.

However, it is not a worldwide boom as prices continue to fall in 22 cities, including several important ones in Israel, Spain, Italy, and India. Hong Kong posted 2.2% annual growth and Beijing 3.6%, but despite being resilient, Asian cities are not the growth engines they were in 2018. Luxury sectors in both cities are doing much better.

According to Knight Frank, the increase in housing prices is contributing to a broader asset boom, which worries economists because, unlike in 2008, commodities, equities, and housing prices are all moving in the same direction.

However, unlike during the previous global recession, banks now operate under stricter lending regulations, households are less indebted, the tapering of fiscal stimulus measures is not anticipated to result in a sudden increase in unemployment, and an abrupt increase in interest rates looks unlikely given that inflationary pressures are considered to be “transitory,” according to Knight Frank. The US Federal Reserve anticipates it will be 2023 before it makes two small increases.

The role of governments is also becoming much more interventionist. In order to slow price inflation in the first half of 2021, authorities in New Zealand, Canada, China, South Korea, and Ireland have all taken action.

The severity of the severe housing shortage that persists in several important global cities and the fact that the pandemic has exacerbated the construction slowdown are perhaps the most important.

According to Knight Frank, three factors could cause prices to rise in the short to medium term.

First, investors may look closer to home to take advantage of rising prices if borders are closed. This is known as the fear of missing out (FOMO). A second home may now be within reach for some buyers due to large sums of accumulated savings that are visible in some markets, and thirdly, some buyers may be eager to lock in lower mortgage rates before interest rates start to shift higher.

However, there are indications that some markets are beginning to cool already. According to Capital Economics, mortgage applications for US home purchases have returned to pre-Covid levels, and Canada has reported two consecutive months of moderating sales, suggesting that the pandemic’s distortionary effects may be waning. Knight Frank agrees.