Comparisons between UAE and US property markets are exaggerated

The Mortgage Bankers Association (MBA) reported that the number of new and existing applications fell sharply to a 22-year low. This is especially true at the high end of the market, which, in theory, should be least affected by rising interest rates. Curiously, among middle-income earners, prices continued to rise, albeit at a more moderate pace, as the buying frenzy slowed to more rational levels.

Of course, in the U.S., the housing market has been plagued by low inventory for much of the past decade, a phenomenon that continues to be a catalyst for demand. Because potential sellers don’t see enough opportunities to climb the housing ladder, those who end up buying new homes end up paying more than they expected. The problem is that most single-family homes are priced as high as luxury pads were a few years ago, and existing homeowners have no choice but to move to more affordable segments or hold off on selling.

Declining inventories, as well as reduced demand, could mean price corrections in certain market segments, exacerbated by rising inflation and drying up of liquidity.

In Dubai, the inventory problem is not as severe as it is in the US – the market is neither as “oversupplied” as the historical narrative suggests, nor oversupplied. However, the recent trajectory of unplanned resales suggests that buyers may have gone over budget and/or are looking for other avenues of investment, as indicated by the recent surge in IPO filings. Off-plan premiums for recently launched projects have started to decline, and in some cases have even turned negative, suggesting that speculative demand is starting to wane.

Likewise, asking prices are starting to show signs of moderation, mirroring the state of the U.S. housing market. The surge in mortgage buyers witnessed over the past year and a half is expected to slow, and with it comes demand for new homes. While Dubai will continue to see an influx of people – and long-term growth in demand for housing – options for existing and potential buyers will continue to grow. That means a similar outcome to the U.S. – less bidding wars as liquidity starts to slow.

There are important differences between the Dubai real estate market and the US real estate market. This factor is homeownership. As immigration reform continues to play a role in the economy, demand for home ownership will remain stable as more people move out of the flip-flop mentality and see cities as their home.

This driver will continue to dominate the middle- and upper-income segments of society. Factors such as rising interest rates will undoubtedly dampen the demand curve, but as data from the US stagflation years of the 1970s suggest, homeownership will continue to rise. For investors, the message was all too clear: History does rhyme. It rhymes all the time.