SYDNEY – Australian suburbs are experiencing substantial property price gains, with Sydney leading the charge, despite the Reserve Bank of Australia’s (RBA) interest rate reaching 4.35%. CoreLogic’s latest data reveals that robust population growth, fueled by international students and migrants, is a significant factor behind this trend.

Eliza Owen from the CoreLogic research team noted that certain Sydney suburbs have seen remarkable yearly increases in property values. Thornleigh recorded a surge of up to 19.7% over the past year, including a 3.3% growth in the last quarter alone. Strathfield also witnessed a similar annual rise, and Five Dock enjoyed an 8.4% uptick.

These figures reflect Sydney’s appeal to overseas newcomers, with the median house price in the city now at $1.397 million. This attractiveness is not just limited to Sydney; other cities are also seeing notable growth due to the influx of migrants. For instance, Melbourne’s Macgregor suburb has experienced an annual rise of up to 19.7%.

In Perth, the suburb of Yokine has enjoyed a significant annual increase of 17.3%, while Adelaide’s Taperoo has risen by 12.7%. This growth comes at a time when Australia’s inflation rate stands at a high of 5.4%, surpassing most OECD countries except New Zealand.

The Treasury is closely monitoring these developments and anticipates that migration could exceed its initial estimate of 315,000 for the fiscal year, potentially adding further pressure to the housing market as demand continues to outstrip supply in key urban centers across Australia.

Source : Investing.com

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The shock that rippled through global housing markets as central banks rapidly raised interest rates last year has given way to a cold new reality: The real estate bonanza that fueled wealth for millions of people is over.

Markets around the world are caught between sharply higher borrowing costs — likely here to stay — and a shortage of homes that’s keeping prices elevated. That’s made housing in many areas even less affordable, while property owners with resetting loans face increasing financial strain.

The US market, dominated by 30-year mortgages, is effectively frozen as homeowners with low rates are reluctant to sell and buyers are squeezed. In the longtime boom areas of New Zealand and Canada, values haven’t fallen meaningfully for house hunters, and people who paid peak prices are now struggling with higher loan payments. From the UK to South Korea, distress is mounting for landlords. And in many places, higher interest rates are only making it harder to build.

The scenarios may be playing out differently in each country, but they all add up to a potential drag on global economies as people shell out more of their income for housing, whether they rent or own. And with buyers increasingly locked out, the viability of homeownership as a path to middle-class security — a bedrock of personal finance for generations around the world — is suddenly looking a lot more difficult. The winners are longtime owners who’ve captured equity from soaring values or don’t have a mortgage, freeing them to put cash in higher-yielding investments.

“The golden age of single-family housing is behind us,” said Mark Zandi, chief economist at Moody’s Analytics. “If you bought in the wake of the financial crisis, you built up a lot of equity in most parts of the world, but the next 10 years is going to be more of a slog.”

Zandi expects that US 30-year mortgage rates, currently about 7.4%, will average somewhere around 5.5% over the next decade, compared with a low of 2.65% in early 2021. Most other developed countries will see a similar increase, he says, even if particular levels vary.

A lot remains unknown. A deepening war in the Middle East and the ongoing economic troubles of China — contending with its own series of property crises centered on its highly indebted developers — could contribute to a broader global downturn that would reduce housing demand and push down prices substantially, causing far worse financial turmoil. And in terms of real estate, commercial property has become more worrisome for the economy.

But even as inflation cools and many countries’ rate-hiking campaigns are easing, consumers are starting to come around to the idea that borrowing costs may never be as low as they were in the 15 years since the financial crisis. It was one thing when rates suddenly shot up and people facing higher payments thought they could muddle through, or take on mortgages with the expectation of refinancing later. It’s another when the higher costs drag on for years.

‘Glacial Period’

In the US, the collision of low inventory, rising prices and the highest mortgage rates in a generation has sent sales of previously owned homes to the lowest level since 2010, according to the National Association of Realtors. The market is now the least affordable in four decades, with about 40% of the median household income required to purchase a typical home, data from Intercontinental Exchange Inc. show.

The most severe effects may still be to come: In a report last month, Goldman Sachs Group Inc. economists said that the impact of sustained higher mortgage rates will be the most pronounced in 2024. They estimated that transactions will fall to the lowest level since the early 1990s.

“In some ways we’re in the early stages of this glacial period, and it’s unlikely to thaw anytime soon,” said Benjamin Keys, a professor at University of Pennsylvania’s Wharton School. “This weirdness can last for a long time.”

That stands to have knock-on effects. Mobility for jobs could be limited, family members and friends may more often be forced to live together, and, as the elderly age in place, homes may be kept off the market that could otherwise be purchased by younger families. At the same time, homeowners are sitting on near-record equity and the vast majority are unaffected by rate hikes, which might otherwise force sales or result in foreclosures that would give buyers a chance to enter the market.

“Things might get a little more affordable, but certainly not to what people would have hoped for,” Niraj Shah, an economist with Bloomberg Economics, said of global housing markets. “It’s going to be a struggle on both ends.”

He predicts a “slow puncture” in prices for developed economies rather than a crash, saying that an economic slowdown is unlikely to result in heavy job losses that would cause severe housing distress. But homeowners pinched by higher rates may have to cut back on spending in other areas to keep up with their mortgage payments, Shah said.

“You have distressed people, but not distressed sales,” he said.

Watching Pennies

One of the most extreme cases is playing out in New Zealand, the South Pacific nation that was home to one of the world’s biggest pandemic booms, with property prices rising almost 30% in 2021 alone. About 25% of the current stock of mortgage lending was taken out that year, and a fifth of those were first-time buyers, according to the Reserve Bank of New Zealand.

Mortgage rates in the country are typically fixed for less than three years — meaning the central bank’s 525 basis points of rate hikes since October 2021 are sending house payments soaring. The RBNZ says around half of the outstanding stock of mortgages have been refinanced this year. It estimates the share of borrowers’ disposable income dedicated to interest costs will rise from a low of 9% in 2021 to around 20% by the middle of 2024.

That’s squeezing the budgets of people such as Aaron Rubin, who took out a NZ$1 million ($603,000) mortgage in 2021 to finance the purchase of a NZ$1.2 million four-bedroom house. After moving to New Zealand from the US eight years ago, he and his wife, Jessica, thought buying a home in the coastal city of Nelson was a decision that would provide stability for their two young children.

At first, the couple paid around NZ$4,000 a month on their mortgage. After a refinancing, it’s now up to about NZ$6,400.

“We can no longer afford to visit our family in the US and we are literally watching every penny that flows in and out of the account,” said Rubin, a 46-year-old software engineer. “It’s time consuming and stressful, and it’s changed our lifestyle.”

He considers himself lucky — his financial situation isn’t dire, and the couple can afford to continue paying their mortgage. He sees many Kiwis under far greater pressure.

The saving grace for many households has been strong wage and employment growth that has kept distress to a minimum, said Sharon Zollner, chief New Zealand economist at ANZ in Auckland.

“Once you deflate it by household income growth, debt is actually considerably lower than it was in 2007,” she said. “But of course, the average hides a million stories, and there are certainly some stressed people out there.”

Investor Pullback

The global housing boom of the last decade made real estate a fast path to wealth in countries such as New Zealand, Australia and, especially, Canada, where tens of thousands of people turned into amateur investors. By 2020, people with multiple homes had come to account for almost a third of the housing stock in two of Canada’s three most populous provinces, Ontario and British Columbia.

But higher interest rates and bond yields mean the math has suddenly flipped. Owning a condo in Canada’s biggest city, Toronto, will now yield only 3.9% after mortgage costs and other expenses, less than the 5% earned by investing in a Government of Canada treasury bill, according to a Bank of Montreal study.

“I don’t see how you can replicate the last 20 years going forward,” said Robert Kavcic, the Bank of Montreal economist who authored the report. “You’re going to have a whole generation of investors learn a pretty hard lesson.”

Higher borrowing costs have already pushed some investment properties deep into negative cash flow, forcing their owners to sell while also damping interest in new purchases. That could spell trouble for regular people just looking for a place to live too.

Investors buying units pre-construction has become a key source of financing for developers in the last decade, and their pullback has already seen the delay or cancellation of thousands of planned units in cities like Toronto. Canada’s already under-supplied market is one reason home prices have proved surprisingly resilient to higher interest rates, and the expected slowdown in building could only exacerbate the shortage.

A similar situation is playing out in Europe, where higher rates and soaring construction costs threaten to intensify supply strains. In Germany, new building permits fell more than 27% in the first half of the year, and in France they dropped 28% through July. Sweden, suffering its worst slump since a crisis in the 1990s, has building rates running at less than a third what’s deemed necessary to keep up with demand, threatening to further test the limits of affordability.

And that’s not even getting into the compounding strain from skyrocketing consumer prices generally. In the UK, which is facing the highest cost-of-living increase in a generation, nearly two million people have resorted to using buy-now-pay-later credit to cover groceries, bills and other essentials, according to a survey this year by the Money and Pensions Service. With more than one million homeowners estimated to be refinancing their mortgages this year at much higher levels, that pressure will only get worse.

A report released in September by KPMG showed almost a quarter of UK mortgage holders are considering selling and moving to a cheaper property due to the surge in financing costs, and mortgages with late payments now account for over 1% of the value of outstanding home loans. For landlords, who often have floating-rate mortgages, it can be worse, and that translates directly into pressure on renters.

London landlord Karen Gregory had little choice but to sell her building after her mortgage payment jumped more than threefold, leaving her with the prospect of evicting a young couple with a baby on the way. They found a new home before her deal, but the situation left her fed up.

“Landlords have had enough of the increase in interest rates,” Gregory said.

Asia Shakeout

In Asia, South Korea is contending with its own landlord fallout. The country has the developed world’s highest ratio of household debt-to-gross domestic product, at 157%, if the roughly $800 billion is counted from “jeonse” — a rental system unique to the country.

Under the system, landlords collect a deposit called jeonse that’s equal to roughly half of a property’s value at the start of the lease period, which typically runs for two to four years. When interest rates go up, jeonse becomes less attractive than paying monthly rent and the size of the deposits landlords can get from renters falls. Because owners often use new deposits to pay back old ones when leases expire, it becomes harder for them to meet their obligations.

The risk of defaults from jeonse landlords is expected to persist through 2024, because the contracts coming due were signed when prices — and hence deposits — were at record highs.

Hong Kong, meanwhile, has been hit by China’s slowdown, a population exodus and rising rates that have halted once-unstoppable price gains. Since its currency is pegged to the greenback, the city’s monetary policy generally moves in tandem with the US. That’s caused mortgage rates to more than double since the beginning of 2022. Existing-home prices in the notoriously expensive area have fallen to a six-year low, builders are offering deep discounts and the government is slashing extra stamp duties for some buyers to revive the hub.

Unless interest rates start falling, the Hong Kong housing market will continue to suffer. Prices in the city had surged so much in the past decade that homes are still unaffordable to many, meaning the recent drop in values doesn’t offset the higher borrowing costs — the same scenario that’s playing out in much of the world.

Housing markets “have had a real party the last two decades, and this is simply because you’ve had record low interest rates and lack of supply fueling house prices,” said Shah of Bloomberg Economics. “The decade ahead has to be the decade of great moderation.”

Source : Bloomberg

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PRIVATE real estate fundraising plunged in the third quarter as higher interest rates cooled investor appetites for risk.

Around the world, US$18.2 billion was raised by 61 funds in the three months till September, a 71 per cent decline from the second quarter, when 117 funds raised US$63.4 billion, according to a report by Preqin. It was the slowest rate of fund closures in the present cycle of interest-rate increases, the research firm said.

Property markets around the world are in turmoil as interest-rate hikes by central banks have increased the cost of borrowing. At the same time, valuations have dropped for some property types, decreasing the returns investors can expect – especially for offices, which have been battered by the rise of remote work.

“Investment opportunities that can offer a stable positive net income stream and a clear investment exit route are very scarce,” said Henry Lam, associate vice-president of research insights at Preqin. “Market players tend to take a wait-and-see approach until the future pathway of interest rates is more certain.”

North America-focused funds accounted for the largest share of global fundraising in the third quarter, yet their proportion declined to 70 per cent from 81 per cent in the previous three months, according to the report. The Asia-Pacific region’s share increased to 24 per cent. Japan, where borrowing costs remained low, was particularly attractive to investors, Preqin said.

Funds focused on Europe and the rest of the world raised just 6 per cent of the total capital in the third quarter.

The US dollar value of global property transactions slipped to US$26.9 billion in the third quarter from US$31.9 billion in the three months till June, Preqin said. Office sales declined 20 per cent. Industrial and residential buildings traded most actively, with deals falling only 3.2 per cent and 6.3 per cent, respectively.

Uncertainty over interest rates will continue to weigh on real estate fundraising and transactions, according to Preqin, though investors will seek out property types or markets that promise more certain returns.

“In the short term, say the coming one or two quarters, investment sentiment for real estate will remain subdued,” Lam said. “And global fundraising and deal-making are likely to remain quiet.”

Source : TheBusinessTimes

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There will be no government handouts for the hundreds of thousands of homeowners facing crippling increases in monthly mortgage repayments after the Bank of England’s decision to raise rates to 5%. To do so would defeat the object of the interest rate rise – to cool down the economy – and prolong the inflation crisis. Further rate rises look likely as inflation proves more sticky in the UK than many other high-income economies.

The government is instead opting to get the UK’s major banks to agree to a voluntary “mortgage charter”. This involves offering forms of temporary relief such as short-term switches to interest-only repayments, as well as extending the period between missed payments and forcible home repossession. Labour has proposed a similar response. This is sensible. Banks should be well placed to absorb some reductions in returns, being better capitalised and enjoying high returns on their lending on the back of recent interest rate rises. But if rates stay higher for longer, additional assistance may be needed to avoid repossessions.

But the political firestorm around rising mortgage rates needs to be put in the wider context of the UK’s broken housing market. The outcry over the many homeowners who face paying more than 20% of their disposable incomes in mortgage repayments will get short shrift if you’re one of the four in 10 renters under the age of 30 who have been paying out more than 30% of your monthly income on rent. Furthermore, many mortgaged homeowners have enjoyed enormous tax-free capital returns on properties bought over the past 15 years, as house prices have increased by around 86% on average since the post-crisis trough of 2008.

Indeed, the lack of political or media outrage at the government’s decision to indefinitely freeze local housing allowance rates in April 2020 stands in marked contrast to the “mortgage timebomb” furore. Since then, as a recent report by the Institute for Fiscal Studies shows, rents for new lets have risen by more than a fifth on average in the UK, in part due to rising interest rates which increase the demand for rental properties. This meant that in the first quarter of 2023 only 5% of private rental properties were affordable for housing benefit recipients, down from 23% in 2020. The same report also found that the quality of both private and socially rented housing had become significantly poorer.

But calls for unfreezing housing benefit have been ignored so far. One risk with raising housing benefit in an unregulated private-renting sector is that it only enables landlords to increase rents. The obvious way to deal with this is to introduce rent controls, which are now being employed in Scotland and have been called for by Sadiq Khan in London. Evidence suggests that rent controls are effective in reducing rents, but can lead to a fall in the supply of private rental accommodation. If more such properties are then sold to first-time buyers this may not be viewed as a problem. But given current affordability problems, what the UK clearly needs is more non-market and good-quality socially rented housing.

Could the mortgage crisis offer an opportunity to reset the market for renters and homeowners? One option for homeowners facing repossession or poverty due to unaffordable mortgages, as proposed in a recent report for the Joseph Rowntree Foundation, would be for the government to support social landlords to buy the homes of mortgaged homeowners, pay off their mortgages and convert the properties to the socially rented sector. The government could fund any negative equity gap and homeowners could continue to live in their properties as social tenants, paying a rent to the government. This would shift the risk caused by the rate rises away from individuals and on to the state – but in return the state would receive an equity stake and flow of rental income, and could expand the supply of affordable housing. A similar approach could be taken by buy-to-let landlords who are in distress and seeking to exit the sector.

The situation also demonstrates the need for a major rethink of the mortgage market in the UK. The UK is unusual in placing such interest rates and credit risks on individual households, being dominated by short-term fixed-rate mortgages of two to five years. In the US, Canada and much of Europe, much longer-term fixed-rate mortgages of 20-25-years are the norm and mortgage insurance is also more common. There is a good case for introducing longer-term fixed-rate mortgages and insurance for first-time buyers with high loan-to-value or loan-to-income ratios, in order to reduce financial risks and avoid the kind of scenario we are seeing play out today.

However, the danger of such a plan is that it would lead to even more mortgage debt flowing into the housing market and would further drive up house prices, as evidence suggests poorly targeted help-to-buy schemes have done. To prevent this, the government needs to correspondingly reduce the investment demand for housing from those people who already own. Existing owners and larger investors enjoy a major advantage in the mortgage market as they can use existing property as collateral for loans, and access larger and cheaper loans with smaller or even zero deposits. This advantage can most easily be removed with property tax reform, with higher taxes on buy-to-let income and second homes. Reforms to make buy-to-let mortgages less attractive would also help.

For most of the 15 years since the great financial crisis, historically low mortgage interest rates have led to a surge of investment into housing, pushing prices ever-higher and disproportionately benefiting anyone lucky enough to have managed to buy a home. Lower-income groups have seen their prospects of home ownership disintegrate while experiencing rapidly rising rents relative to their incomes.

Mortgaged homeowners are facing a bleak few years and solutions are needed. But we can’t lose sight of the fact that renters have been facing the same problem of unaffordable housing costs for too long, and with little relief in sight.

Source : TheGuardian

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Sydney is continuing to lead a home price rebound, as property values close in on a return to pandemic boom peaks.

Two interest rate rises in a row appear to have done little to dent the market, particularly in the premium sector — the top quarter of homes by value.

CoreLogic data show a 1.1 per cent rise in national property values over June, backing up May’s 1.2 per cent increase.

Sydney’s 1.7 per cent rise was again the strongest last month, with Brisbane (1.3 per cent), Perth and Adelaide (both 0.9 per cent) the next largest.

Only Hobart (-0.3 per cent) saw prices fall in June.

Regional markets were weaker than most of the capitals, with prices up an average of 0.5 per cent.

Data calculated using a different methodology by rival provider PropTrack shows more modest gains but the same trend, with a 0.6 per cent rise in Sydney prices leading a 0.3 per cent national average gain.

Hobart and Darwin were the only two capital cities to record falling prices, although regional areas were generally also either dropping or posting very modest increases.

Adelaide and Perth are the only two capital cities currently at record prices, but many other locations are getting close.

Overall, regional Tasmania and regional Queensland have seen the biggest capital gains since the outset of the pandemic, both above 50 per cent, while Melbourne has seen the smallest increase of just above 15 per cent.

Home owners reluctant to sell

Carla Peacock knows the strength in Sydney’s premium property market first hand, after recently coming up short in her bid to secure a waterfront apartment in the city’s lower North Shore.

“It’s been hard, it’s been getting harder,” she told ABC News.

“I think vendors are pulling out of the market, because they’re scared of their properties not going for the prices they want and, as a result, I think properties are often going for more than they’re actually worth.”

CoreLogic’s research director Tim Lawless said the data backs up Ms Peacock’s gut feeling.

“Through June, the flow of new capital city listings was nearly 10 per cent below the previous five year average and total inventory levels are more than a quarter below average,” he observed.

Matthew Smythe, the principal at Belle Property in Mosman and Neutral Bay, was the agent selling the two-bedroom unit.

He said the market in his area was quite hot.

“We’re finding about two-thirds of our stock is selling before auction date, and then the balance is pretty much around auction date. So it’s still quite good clearance rates for us around here,” he observed.

How are property prices defying rising rates?

Mr Smythe said, at the high end of the property market where he operates, many buyers are paying cash and so unaffected by interest rate rises.

“Typically a lot of them are sort of debt free, mortgage free,” he observed.

“So they’ve got the capacity to buy no matter what interest rates do.”

The auctioneer who sold the unit, Clarence White, said interest rates are having an effect on the property market, but current levels are clearly not high enough to deter many buyers.

“Each time the cash rate goes up, it restricts buyer capacity and it also gives them pause for thought as to what’s going to happen next,” he told ABC News.

Louis Christopher, a long-time property analyst and managing director of SQM Research, said demand remains strong due to the combination of Australia’s population growing by 500,000 people last year and surging rents continuing to make home ownership look relatively attractive, despite rising rates.

“We’ve definitely had a significant increase in underlying demand, with the population growth right now running at about 2.3 per cent per annum,” he said.

“Then on the supply side, it’s been constrained in terms of new building, as well as existing property owners not willing to sell in this current environment.”

Will property prices keep rising?

Mr Christopher said, in the short-term, the property market is showing resilience in the face of interest rate rises.

Despite some evidence that a growing number of recent buyers are reselling as they struggle with surging mortgage repayments, Mr Christopher said most owners will try everything to hang onto their homes.

“When we actually look at leading indicators, such as distressed sales activity, those numbers are still benign at this point in time,” he said.

“The fixed mortgage resets have already started, it’s already happening as we speak.

“So far, so good, [but] we’re still not quite at the peak of this reset that’s occurring to many of your home borrowers right now.”

However, Mr Lawless said that there could be some early signs of price growth slowing as the most recent interest rate rises increase expectations of how high the RBA will go and how long rates may be elevated.

“Higher interest rates and lower sentiment will likely weigh on the number of active home buyers, helping to rebalance the disconnect between demand and supply,” he noted.

On the supply side, both agent Matthew Smythe and auctioneer Clarence White believe more people will decide to sell during the traditional market peak in spring.

“Don’t panic — if it’s not right, don’t necessarily feel like you have to buy it,” Mr Smythe advised.

“There’ll be more stock coming into spring, that’s the feeling that we’re getting here.”

“If you are looking to sell your property, now is a fantastic time because there’s so little good property on the market,” added Mr White.

While Mr Christopher believes most borrowers can still find ways to hang onto their homes in the face of much higher mortgage repayments, his major concern is what effect the spending cuts they will need to make to do so will have on the economy, which will feed back into home prices.

“The real danger for the housing market is that if we see a significant spike in unemployment over the next six months, similar to what we had, say, in 1990,” he warned.

“That could actually create the conditions for a significant double dip downturn in the housing market, but we’re not there yet.

“Recession means a rise in unemployment. A rise in unemployment means more defaults in the housing market. And more defaults means housing price falls.”

Source :  ABCNews

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