According to data from the research firm Absolute Strategy Research, in April, the global housing price index generally rose, with US housing prices rising 6.5% year-on-year, Australian housing prices rising 5%, and Portuguese housing prices soaring. In other countries, despite years of high interest rates, the market performance has surprisingly strong.
Overall, the real estate markets in the United States, Australia, and some parts of Europe seem to have shaken off the impact of rising interest rates.
The Oxford Economic Research Institute found in a recent report that the real estate market of developed economies seemed to have relatively safely avoided the last foam deflation. The prices in all major housing markets are higher than before the pandemic.
Kashif Ansari, co-founder and CEO of Juwai IQI Group, a global real estate technology company headquartered in Kuala Lumpur, told First Financial reporters that in April, US housing prices rose 6.5% year-on-year. Despite high interest rates and high purchasing costs, housing prices still cannot be shaken. The reason is that homeowners are not in a hurry to sell their properties at low prices, and housing resources are scarce in the market, leaving buyers with limited options and making it even more difficult to negotiate.
Chen Yuewu, Executive Partner of Golden Eagle Real Estate Investment Company in the United States, told First Financial reporters that the inflation rate in the United States has decreased, and the market expects the Federal Reserve to cut interest rates in 2024. Currently, mortgage interest rates in the United States have dropped from a high of nearly 8% to below 7%.
Mortgage loan interest rates have once again fallen
The Mortgage Bankers Association of America released data on June 19th, showing that last week, mortgage interest rates in the United States fell below 7% for the first time since March this year.
Specifically, in the week ending June 14th, the interest rate on US 30-year fixed mortgage contracts decreased to 6.94%. The 5-year adjustable rate mortgage interest rate fell to 6.27%, the lowest level since February.
A study by the Oxford Institute of Economics shows that mortgage interest rates seem to peak in November 2023, but the subsequent inflation trend has been disappointing, dampening market expectations for policy relaxation. This has prevented further declines in mortgage interest rates and even prompted some mortgage interest rates to rise again. It seems that although the pace of mortgage interest rate decline has not yet accelerated, it is almost certain that the decline in mortgage interest rates will continue.
This means that even if inflation in the service industry remains stubborn and may continue throughout the summer supported by rent, there will not be a repeat of the disappointment in market interest rate expectations for the end of 2023.
The Oxford Institute of Economics believes that there may be more disappointing data for decision-makers in the summer, but market interest rates are unlikely to repeat the situation in November 2023. At that time, market interest rates, including mortgage rates, decisively declined in anticipation of policy rate cuts. Once it is discovered that interest rate cuts will not come so quickly and the magnitude may not be as significant, this trend will reverse and mortgage interest rates will start to rise again.
Since April, the market's expectations for policy interest rates for the next 18 months have stabilized, especially in the June September period, indicating that even if disappointing data prolongs policymakers' hawkish stance, mortgage rates are unlikely to rise again now.
Chen Yuewu told reporters that he personally believes that after the Federal Reserve starts cutting interest rates as expected by the market this year, mortgage rates will further decrease significantly, promoting rapid growth in the US real estate market.
Ansari explained to First Financial reporters that currently, most American homeowners have lower mortgage rates than the current level and a repayment period of up to 30 years, so they are not worried about an increase in interest rates. Instead, high interest rates have increased their wealth.
"For homebuyers, brokers have reported that they choose to rent and wait for mortgage rates to be lowered to an affordable level. However, it is foreseeable that once interest rates are lowered, many buyers will concentrate in the market and housing prices will rise again. He explained that the US economy is currently performing strongly, with unemployment rates hitting new lows, high hourly wages for workers, and a continuous influx of legal and illegal immigrants.". It is expected that the US housing market will find it difficult to cool down in the short term.
The adjustment only reduced the peak housing prices
Is the situation in the real estate market already clear? Perhaps so, but the situation is more complex than that.
Previously, in developed economies, housing prices skyrocketed due to people seeking larger living spaces during the pandemic. After the end of the epidemic, higher interest rates and mortgage costs have caused people to worry about their housing expenses, leading to a decline in housing prices for a period of time.
However, research from the Oxford Institute of Economics has found that even so, the housing markets in major developed economies are still above pre pandemic levels, and recent adjustments have only reduced their peak. Except for Germany, most markets are experiencing slow but stable growth.
A study by the Oxford Institute of Economics found that although the price to income ratio is currently close to pre 2008 levels, the price to rent ratio is still much higher than pre pandemic levels. This may indicate that even if housing prices do not fall completely, there is still room for easing, but it also warns that rent may continue to rise at a faster rate than usual, exacerbating the problem of slow inflation in the service industry.
Similarly, the housing price to rent ratio in all major developed economies is much higher than the long-term average, but the current housing price to rent ratio in countries such as Canada, New Zealand, and Germany is even higher than the post pandemic average.
The United States is one of the countries with historically high housing to rent ratios, as well as Canada, New Zealand, and Spain, despite experiencing significant housing to rent imbalances before the financial crisis.
The Oxford Institute of Economics believes that in the context of high and sticky inflation in the service sector, which is largely driven by rent and housing services, this may be a concern.
Taking Australia as an example, Ansari told First Financial reporters, "Since the pandemic, Australia's population has grown rapidly. Before 2020, Australia's annual net immigrant population was about 160000, increased to 184000 in 2022, and exceeded 400000 in 2023."
He explained, but Australia's housing supply has not kept up. Renting a house in major cities is very difficult, and the cost of purchasing a house is higher than ever before.
Meanwhile, in most developed economies, nominal wage growth is gradually slowing down, but real wage growth is not sluggish and far higher than long-term trends.
The United States is almost the only major developed economy with a significant slowdown in real wage growth, and although the latest data is mixed, it still shows that wage growth has rebounded. Meanwhile, wages in Canada, the UK, and Germany are still slowly increasing, while Japan has just concluded a round of wage negotiations and achieved the highest wage growth rate of 5.28% in over 30 years.
In addition, mortgage default rates have been steadily increasing in several major markets. The changes are still relatively small and limited, but this is an increase that has emerged after more than a decade of continuous improvement. In the UK, the proportion of mortgage defaults (repayments overdue for more than 30 days) is currently 1.28%, higher than the low point of 0.78% in the third quarter of 2022, but far below the 3.64% in 2009. The situation is similar in some European countries, while in the United States, the mortgage delinquency rate for single family homes is still extremely low, but the delinquency rate for multi family homes has increased.
The Oxford Institute of Economics believes that, combined with the already underway process of declining mortgage interest rates, this should be sufficient to maintain a healthy real estate market. However, this means that rent may continue to gradually slow down, thereby keeping the service industry and overall inflation rate at a higher level for a longer period of time.
Comments
Post a Comment