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Oxford Economics has raised concerns about the global real estate market's recovery, suggesting that surging bond yields could hinder progress this year. With bond yields climbing sharply in early 2025, especially in long-duration bonds like the US 30-Year Treasury and the UK 30-Year Gilts, real estate prices are expected to face downward pressure. This situation is exacerbated by rising borrowing costs, higher unemployment, declining consumer sentiment, and an increase in loan delinquencies.
Bond yields are influenced by supply and demand dynamics in the financial markets. When demand for borrowing surpasses the available supply of capital, yields rise to attract investors. Recently, weak global demand for bonds pushed bond prices lower and yields higher, with inflation expectations, a lack of interest in lower yields, and concerns about debt service contributing to the rise. These changes are particularly detrimental to yield-sensitive assets like real estate, which have already been struggling due to higher interest rates.
The combination of rising bond yields, elevated unemployment, and declining consumer confidence may further delay the real estate recovery and put additional downward pressure on property values. Higher borrowing costs and increased delinquencies could lead to tighter credit availability, amplifying the issue. The broader economic landscape could also suffer, with businesses reducing expansion and consumer confidence eroding, creating a challenging outlook for the real estate market in 2025.
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