Impact of the US market on property prices around the world with a focus on Bulgaria

The relationship between the US economy and real estate prices around the world is strong and multifaceted. As the largest economy with a leading reserve currency, the United States influences global financial conditions – particularly through the Federal Reserve’s (Fed) interest rate policy and market sentiment, which often spill over national borders. This influence is clearly visible in the dynamics of real estate markets in various countries, including Bulgaria. Over the past two decades, the world has experienced both global real estate booms and sharp declines, which have often been mirrored or even triggered by events in the US market. A classic example was the 2008 global financial crisis, which began with the collapse of the US subprime mortgage market – it led to a massive decline in real estate prices in many countries. In Bulgaria, for example, house prices fell cumulatively by over 35% in the years after 2008. This period was followed by a long recovery phase, stimulated by low global interest rates and abundant liquidity. Since around 2014, near-zero interest rates on bank deposits have encouraged many Bulgarians to direct their savings into real estate, which has started a new bull market cycle. Thus, the policies of leading central banks, led by the Fed, have created an environment of cheap credit resources, which has helped real estate prices rise globally.

Interest rates and credit availability. One of the most direct links between the US market and global property prices is through interest rates. When the Fed changes its key interest rates, the effect spreads to international financial markets and determines the course of action of many other central banks. Low mortgage interest rates make home purchases more affordable, increase demand and, accordingly, lead to an increase in prices. Conversely, rising interest rates make credit more expensive, cool buyers' attitudes and can push prices down. The latest cycle demonstrates this clearly: in order to control inflation, since March 2022, the Federal Reserve has undertaken the most aggressive campaign to raise interest rates in decades. Within months, the US key interest rate has risen from near zero to the 4.5–4.75% range – “at the fastest pace in two decades.” This also led to a sharp jump in typical mortgage rates in the US: the average 30-year fixed mortgage reached about 7% – the highest level in over 20 years. Such a jump immediately cooled the real estate market in America: the number of transactions began to fall, and house prices stopped their sharp rise and even recorded downward corrections. The International Monetary Fund emphasizes that interest rates play a critical role in property prices: an empirical increase of 1 percentage point in real interest rates slows down the growth of house prices by about 2 points. In other words, the reversal of the global interest rate trend in 2022 – from a continuous decline to a sharp rise – also reversed the direction of housing markets. By mid-2023, two-thirds of OECD countries had recorded a decline in house prices in real terms (taking into account inflation). This synchronous turnaround highlights how strongly the decisions of the Fed and other major central banks affect the affordability of home loans around the world.

The effect was also clearly felt in Europe. The European Central Bank (ECB) had virtually no choice but to follow the Fed’s lead after eurozone inflation also accelerated sharply in 2022 – to levels of 8-10%, unseen since the introduction of the euro. The ECB raised its interest rates for the first time in 11 years, ending the era of 0% interest rates. By the end of 2022, base interest rates in the eurozone reached ~2.5%, the highest level since 2008. The results were immediate: demand for mortgage loans fell sharply. In Europe, the number of new housing loans shrank dramatically – with a drop of about 70% year-on-year by the end of 2022. Many households reconsidered their plans to purchase property given the higher loan payments. In Bulgaria, the interest rate situation had some peculiarities, but the general trend did not pass by our market. For most of the last decade, interest rates on housing loans in our country were in a historically low range (around 2.5–3% per year), which seriously stimulated lending and purchases. Even in 2022 – when interest rates in the West were rapidly rising – Bulgarian banks maintained relatively low levels. The weighted average interest rate on new mortgage loans in our country was around 2.6–2.7% at the end of 2022, the lowest in the entire EU. Experts explain this by the high competition between banks and the specifics of the monetary regime (currency board), which slowed the convergence of our interest rates with the rising European ones. Only at the end of 2022 did the Bulgarian National Bank (BNB) begin to slightly increase its key interest rate – by January 2023 it became 1.42%, starting from zero levels a year earlier. Commercial banks reacted timidly: according to data in early 2023, some banks adjusted mortgage rates by only 0.2 percentage points upwards. The banks assured that any increase would be smooth and moderate, as no lender has an interest in customers stopping servicing their loans en masse.
. This relative stability of loan interest rates in Bulgaria explains why the property market in our country continued to grow, even when prices were already cooling in a number of developed economies. However, the trend towards higher credit prices is starting to manifest itself here as well – analysts’ expectations at the beginning of 2023 were that by the end of the year, housing loan interest rates in our country would rise by a total of 1.5–2 percent. In summary, the period of very low global interest rates (2015–2021) significantly supported the rise in property prices in Bulgaria, and the tightening of monetary policy that began in 2022 is gradually taking away some of this stimulus. This process of normalization of interest rates – although delayed in our country – is likely to lead to more moderate growth in property prices in the future, as the accessibility of credit deteriorates.

Inflation and the Fed’s monetary policy. The second key link between the US and global property markets is inflation – and the central banks’ response to it. Since the outbreak of the COVID-19 pandemic, the global economy has been flooded with unprecedented stimulus: the Fed and other major banks have cut interest rates to zero and injected trillions of dollars in liquidity, while governments have undertaken massive support packages. This highly stimulative monetary and fiscal policy, while necessary in the crisis, has contributed to a sharp rise in prices as economies have recovered. The BNB notes that “the prolonged period of highly stimulative monetary policy pursued by leading central banks” is among the factors driving high global inflation in recent years. Combined with disrupted supplies and the military conflict in Ukraine, the result has been double-digit inflation simultaneously in the US, Europe and many other countries in 2022 – something not seen in decades. In the US, inflation reached its highest levels in 40 years (over 9% in June 2022), and in the EU – a record 11.5% in October 2022. This situation has put the Fed in a position to urgently tighten monetary policy (as we have already described). This is where the spiral began: higher interest rates cooled demand for real estate, but inflation itself also has specific effects on real estate. On the one hand, high inflation undermines the purchasing power of households – incomes lag behind, their real savings melt, making it difficult to raise funds for the purchase of a home. On the other hand, however, real estate is often perceived as a safe haven asset in periods of high inflation. When people fear that inflation will “eat up” their savings, they tend to invest them in more durable and real assets such as real estate. It is precisely such a behavioral effect that was massively manifested in 2021–2022. According to observations by Bulgarian experts, the fear of currency devaluation has become a leading motive in the market: many buyers were in a hurry to buy “now” to avoid higher prices tomorrow and depreciated money in the bank. The combination of cheap credit and accelerated inflation created a kind of race between buyers in our country, with demand significantly exceeding supply. This naturally shot prices up. In 2022, housing prices in Bulgaria reached a historic peak – about 20% above the previous peak in 2008. On an annual basis, the appreciation in nominal terms was over 13%, which, however, with inflation above 15% means a slight decline in real value. In fact, in September 2022, inflation in Bulgaria reached a peak of 18.7% on an annual basis (by CPI) – the highest level since 1998. This price shock even surpassed the growth of real estate, but nevertheless, investments in housing remained attractive as a hedge against an even more unpredictable increase in the cost of living. An important factor was that interest rates on deposits remained negligibly low (around 0–1%), so that their real yield became deeply negative. In such an environment, buying real estate with a fixed interest rate of ~2.5% per year seemed reasonable - the borrower was effectively repaying a loan in depreciating money, while the value of the property itself at least partially increased with inflation. This phenomenon - negative real interest rates - was widespread in many countries and contributed to the “inflation” of asset prices. However, as the inflation peak subsided in 2023–2024, this support for the real estate market gradually weakened. In Bulgaria, inflation has slowed rapidly to single digits (from June 2023 below 10%, by spring 2025 ~3–4% per year). The calming of the general appreciation should reduce the pressure to flee to property as a protection for savings. As Ivan Velkov of the Bulgarian Industrial Chamber notes, when inflation is tamed, property appreciation also normalizes – it is seen across Europe that a calmer inflationary environment leads to a more moderate increase in house prices. In this sense, the success of the Fed and other central banks in taming inflation will be a factor in stabilizing real estate markets on a global scale. If interest rate increases achieve their goal and inflation falls sustainably, the cycle of constantly rising interest rates will end – and this will allow housing markets to find a new balance after the turbulent years.

Investor behavior and the global real estate market. In addition to interest rates and inflation, the impact of the American market on the world is also manifested through the prism of investor behavior. In the globalized financial system, large investors (funds, banks, multinational companies) redirect capital between different countries and sectors in search of better returns at a given level of risk. When interest rates in the United States were close to zero (for example, in the period 2009–2015 and 2020–2021), the yield on traditional assets such as bonds was low - this motivated many investors to seek alternatives with higher returns, including real estate around the world. This phenomenon of “chasing yield” led to significant capital flowing into real estate markets from London and Sydney to Sofia. International investment funds bought up commercial properties, shopping centers, hotels and even residential portfolios in countries with more attractive prices, which further increased valuations. The years after 2015 were particularly active, when the global volume of real estate investments reached records. Some of these funds also came to Eastern Europe, including Bulgaria – although our market is smaller, openness to capital from the EU and other regions increased after 2012, when some restrictions for foreigners were lifted. Agency data show that in recent years there has also been an increase in foreign buyers of Bulgarian properties, especially from the EU. This includes both individual investors (for example, those looking for holiday homes on the Black Sea coast or cheap city properties) and institutional players. Thus, the mood of global investors – often shaped by what is happening on Wall Street or the policies of the Fed – indirectly affects the Bulgarian property market.

In 2020–2021, for example, the “cheap money” policy to deal with the pandemic and high liquidity increased the appetite for risk. Investors poured funds en masse into assets such as stocks and real estate, causing a boom. In the US, this period was characterized by record housing prices (over 20% per year in places) and strong buyer activity. Similar “hot” markets were seen in Canada, Germany, Australia, etc. – not least because global investors had access to cheap dollar resources, and local buyers also benefited from low interest rates. Bulgaria was no exception: 2021 and 2022 were among the strongest for the property market in terms of transaction volume. According to data from the Registry Agency, the number of property sales in our country in 2022 reached or even exceeded the levels before the global crisis. In parallel, housing prices in 2022 grew at a double-digit rate, exceeding the historical maximum of 2008 by about 20% by the end of the year. Many of these purchases were financed with own funds (savings) or a combination of savings and credit – it is characteristic of Bulgaria that the share of transactions with 100% cash payment is high compared to more developed countries. This partly explains why the increase in interest rates in 2022 did not immediately lead to a collapse in the market – a significant part of buyers were not directly dependent on bank financing and reacted more to the fear of inflation than to rising interest rates. However, signals of a reversal of the cycle became visible at the end of 2022 and the beginning of 2023: buyers became more cautious, the market cooled down and an equalization of forces between sellers and buyers began to be observed. As a real estate company notes in its market review, in the fourth quarter of 2022 and the first of 2023, many buyers were already able to negotiate discounts on asking prices – something that was rare at the height of the boom. This temporary drop in activity coincided with the highest levels of uncertainty around inflation and interest rates. However, after mid-2023, global sentiment partially improved: inflation began to decline, and central banks slowed the pace of interest rate increases in the hope that the peak had been reached. Investors, including those in the real estate market, reacted with some optimism. In many countries, there was talk that interest rates were close to their ceiling and that stabilization or even a decrease was expected within 2024-2025. This expectation breathed new life into housing demand – for example, in the US in the spring of 2023. The market partially revived after the correction, and in a number of European countries, property prices started to rise again in late 2023 and early 2024. Thus, the global cycle seemed to have entered a new phase of cautious recovery, in line with hopes for a "soft landing" of economies.

In Bulgaria, in 2023, there was a period of slowing growth – the increase in housing prices decreased to around 10% on an annual basis (compared to over 13% a year earlier), and in some large cities, slight downward adjustments were even registered on a quarterly basis (e.g. in Sofia -0.1% in Q4 2023 compared to Q3 2023). This was an indicator that buyers were becoming more sensitive to price levels and credit conditions. At the same time, Bulgaria's economy remained stable – unemployment was low, wages continued to grow, albeit below the inflation rate for part of the period. By 2024, an interesting paradox emerged: the property market in our country gained momentum again despite higher interest rates. According to NSI data, in 2024 the number of residential property transactions was a record – around 95 thousand. transactions, which is ~40% above the average before the 2008 property crisis. The total value of housing transactions in 2024 exceeded BGN 12 billion, crossing the psychological threshold of 10 billion for the first time. And prices accelerated again: in the second half of 2024, annual growth jumped to an impressive 18.3% – the highest in the entire EU for this period. Bulgaria topped the ranking of housing price increases in the EU in the fourth quarter of 2024, ahead of Hungary (+13%) and Portugal (+11.6%). This new price peak in our country can be explained by several specific factors that temporarily outweighed global interest rate pressure. First of all, household incomes in Bulgaria have been growing steadily over the past 3-4 years – even faster than the average growth in housing prices for the same period. Increased purchasing power, combined with accumulated savings, fueled the demand for better quality and more spacious homes. Second, as we have already noted, mortgage interest rates in our country remained some of the lowest in Europe. At an average of 2.3–2.5% in recent years, these levels were significantly below inflation, which stimulated lending. The third factor is the continued, albeit weakening, high inflation in 2021–2023, which pushed people to seek investments in real assets. Last but not least, speculative expectations surrounding Bulgaria’s future entry into the eurozone played a role. Many buyers and investors assumed that joining the euro (planned for 2025–2026) would lead to an additional increase in property prices – similar to the experience of other countries before adopting the euro. This expectation itself became a driving force: market participants rushed to “preempt” the possible price increase, thereby actually contributing to its realization even before the fact. Alexander Bochev, Chairman of the National Real Estate Association, notes that 2025 will likely be a peak year with up to 18% price growth (similar to the first quarter of 2025 compared to a year earlier) and that after the adoption of the euro, a normalization of annual price growth to around 10% is expected. In support of this, the experience of Croatia – which entered the eurozone in 2023 – shows that after a one-time jump in property prices by ~17% in the previous year, the market is returning to more moderate growth (6–10% per year). That is, a certain part of the speculative price increase in our country has already occurred in advance and the market will probably self-regulate after the euphoria around the euro subsides.

All these observations indicate that while the interest rate and monetary conditions set by the US set the framework for the movement of property markets globally, specific local factors can temporarily amplify or soften the effect. In the case of Bulgaria, the powerful reflection of the US market (through expensive dollars and global anti-inflationary policies) is balanced by the local reality of catching up incomes, limited supply and a currency board. The currency board and the fixed lev-euro exchange rate mean that the BNB largely follows the policy of the ECB, which in turn reacts with a delay to the Fed. This allowed for some slowdown – and even “overheating” – of our market at times when cooling was already occurring elsewhere. However, it is a matter of time before global trends are fully felt in our country. If the Fed keeps interest rates “higher for longer” (as it signaled in 2023) and the ECB continues to tighten, the price of credit in Bulgaria will inevitably rise and dampen the enthusiasm of buyers. On the other hand, if the US manages to tame inflation and begin a gradual reduction in interest rates after 2024, this would be a favorable scenario – it would reduce the risk of a sharp decline in the property market and would ensure a soft landing after years of rapid growth. For now, forecasts are cautious: housing prices in Bulgaria are expected to slow to single-digit rates over the next 1-2 years, without dramatic declines. A similar outlook – calming, but not collapse – is shared by many other countries, where property markets have already reflected the main correction from increased interest rates and are now stabilizing in view of lower inflation and still sound economic fundamentals.