Housing markets in the Asia-Pacific region are at an important juncture. Having risen over the past decade and during the pandemic, housing prices now appear slated for a decline in many countries. Pronounced housing cycles, which Asia-Pacific has experienced repeatedly also in the past, come at a cost. The buildup of vulnerabilities in the upswing tends to come to the fore during downturns, often with marked impacts on the broader economy. High housing prices and the prospect of increasing mortgage rates, as central banks tighten monetary policy, also imply a significant deterioration in housing affordability.

Housing prices in many countries across the region now appear misaligned, with significant downside risk to prices in the period ahead. Price surges during the pandemic, especially in the region’s advanced economies (AEs), were facilitated by low mortgage rates as central banks implemented very accommodative policy stances, along with country-specific demand and supply factors. This led to sizable price misalignment and a marked increase in downside risks to housing prices going forward, in the order of 5-20 percent in some countries. Rising interest rates will add to downside risks going forward. While the financial sectors of major AEs and emerging market economies (EMs) appear sound and would be expected to remain resilient under such shocks, close supervision is warranted for early identification of any pockets of risk.