Housing market trends point to a recession

To measure the recent market trajectory, we use the Housing Price Index (HPI) with the help of https://www.housingpriceindex.in/ developed jointly by the Indian School of Business (ISB) and Housing.com. We track housing prices and volume sold in eight major cities across India.

From the total price index for India, we see a marginal increase of 0.4% in average prices between April and June 2022. This figure was about 0.3% during the same period last year. The trend of minimal price increase observed during the last few quarters has continued during the last three months as well. The year-on-year increase in prices in June 2022 was 2.8%. Rising costs due to inflationary pressures and premiums linked to ready-to-move in properties, which are in high demand, lead to marginal price increases due to the pandemic.

The top eight cities have seen an increase in property sales on an average over the past six months, by volume index. The index was up from 2017’s base of 100 for the entire second quarter of this year. This is the first time this has happened since the pandemic began. Although moving in a close range, a gradual rise in the volume index is a positive sign for the market. We must emphasize that the current market is primarily driven by the end user. So, even though the index’s growth is slow, it is the continued demand momentum that is guiding the W-shaped recovery in the market. The volume level is well above the March 2020 level; However, they are yet to reach the level of February 2020. At the end of June 2022, the number of units sold across the country is about 8-9% lower than the pre-pandemic level (Feb 2020).

Along with the total numbers, the HPI also provides insight into city-level trends. The price trends at the city level are similar to that of the All India Index. Quantitatively, the price change has been in the range of 0-2% for all cities except Mumbai, which registered a 0.33% decline in its prices during the quarter. In contrast, the volume index at the city level provides interesting insights. The numbers are well above pre-pandemic levels for Mumbai, and have registered a growth of around 22% from January to June 2022. The strong rebound in sales is mainly coming from the growth in sales in Mumbai. However, other cities have also seen moderate growth in the last six months.

After the second wave of COVID-19 witnessed a W-shaped recovery, this positive outlook and an upward trend however requires cautious reading. The upward trend continues to be challenged by global inflationary pressures, a reversal of central banks’ accommodative monetary policy stance, aggravating geopolitical tensions and other financial market instabilities, which are slowing growth.

As we move forward, a series of rate hikes are imminent in the second half of the year. This will be in continuation of the current set of rate hikes by the Reserve Bank of India as it continues to contain inflation. On the other hand, this high inflation has had a negative impact on the real income of consumers on the demand side and input manufacturing cost for the supply side. Both can have an impact on the property market in the short term. However, given the newfound importance of home ownership and home loan rates still below their pre-Covid levels, the action of fence-sitters homebuyers will be crucial in determining the market momentum.

(Ankita Sood is director and head of research at REA India, Shekhar Tomar is an assistant professor of economics at ISB and Sagnesh Ramesh is a research associate at SRITNE.)

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