Spillover?

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PLUNGING US home sales are having a ripple effect on consumer spending, as fewer Americans are moving into houses that need to be outfitted with furniture and appliances.

The effects are visible across the economy. Spending on furniture and related items fell nearly 12 per cent from the year-earlier period in October. Home goods sellers including Z Gallerie and Serta Simmons Bedding have filed for bankruptcy this year, citing weaker demand, and more are probably coming. Williams-Sonoma’s chief executive said last month that consumers are hesitant to spend on expensive furniture. Home Depot, the hardware and appliance store, said its revenue will likely drop this fiscal year.

The Federal Reserve last year started a rate hiking campaign to tame inflation, and slowing the housing market is a key way to make that happen. In October, mortgage rates reached their highest level since 2000, helping to make housing the least affordable since at least the 1980s.

On Thursday (Nov 30), the effects of low affordability became even clearer: a gauge of pending sales for existing homes reached its lowest level since the measure started in 2001. Home loan rates have started drifting lower amid growing hopes the Fed will start to expand the money supply again next year, but it could take years for the housing market to return to normality.

“It’s just less affordable to buy a house today than it was a couple of years ago when rates were much lower, and that’s closed out a certain amount of spending that would have otherwise happened,” said Jack Kleinhenz, chief economist at the National Retail Federation.

The average household shells out US$8,000 more on home-related goods and improvements in the two years after a home purchase, according to a study published last year by professors including Efraim Benmelech at Northwestern’s Kellogg School of Management.

Falling revenue

Without that expenditure, retailers are feeling the pain. Williams-Sonoma, owner of Pottery Barn, estimated last month that its revenue will fall as much as 12 per cent this fiscal year. Ethan Allen Interiors, a maker and seller of furniture, posted a 24 per cent decline in sales in the latest quarter, due in part to slowing demand.

Some firms have struggled to navigate the broad decline in consumer expenditures. A series of companies that provide home furnishings have sought bankruptcy protection this year, including Z Gallerie, Mitchell Gold + Bob Williams, and discounter on Tuesday Morning. Pillow maker Pegasus Home entered bankruptcy in August, mattress wholesaler Serta Simmons did so in January and the photo frame seller NBG Home sought protection in February.

“From a creditor and trade vendor perspective, there’s concern in the industry,” said Jordana Renert, a partner in the bankruptcy department at law firm Lowenstein Sandler, referring to investors in stores that sell decor. “Until new home purchases pick up or mortgage rates decrease, I think the home-goods furniture industry may continue to see a pause in consumer spending and an increase in chapter 11 filings.”

With mortgage rates having risen as much as they have, it’s not clear when home purchase volume will resurge. Many homeowners are unwilling to sell, in part because that means letting go of the cheap mortgages they locked in during the pandemic. That’s translated to relatively more of the transaction volume coming from new home sales, where developers are looking to offload homes they’ve built.

More than 60 per cent of US home loans have rates below 4 per cent, according to data from Black Knight, while the latest 30-year Freddie Mac mortgage rate is closer to 7.2 per cent. On average, a 1 percentage point increase in mortgage rates relative to where borrowers have locked in leads to a 9 per cent decline in the rate at which people move houses, according to a study by professors including Julia Fonseca at the University of Illinois Urbana-Champaign. If a homeowner, for example, were thinking about changing jobs, the new position would have to pay much more for the consumer to be willing to give up their mortgage.

“Lock-in can prevent households from pursuing labour market opportunities that would have been worthwhile otherwise,” Fonseca said.

Homebuilder pressure

Lofty interest rates are not only crimping activity on the demand side, they are also pushing up prices on the supply side of the market and are threatening to keep them elevated for some time, said Robert Dietz, chief economist at the National Association of Home Builders.

The interest rate that homebuilders are paying to finance the construction of single-family homes is close to 13 per cent, Dietz said, and material costs have risen alongside inflation. That has made it more difficult for builders to break ground on new homes now, which could squeeze supply for two to three years. The impact could be felt across the economy for some time, according to Dietz.

“If you take all the challenges in the housing market and think of them almost as taxes on new housing supply, those taxes are restraining economic growth,” Dietz said. BLOOMBERG

Source : TheBusinessTimes

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Rescue measures intended to coax mainland Chinese to purchase residential property in Hong Kong have failed to woo buyers, as the financial hub’s property market slump deepens.

It comes six weeks after Hong Kong Chief Executive John Lee tweaked official housing policy, lowering purchase duties and weakening disincentives against quick resales.

“My WeChat has been buzzing with inquiries from [Hong Kong-based mainlanders] about the specific [changes], but not a single one is interested in viewing properties,” said a real estate agent surnamed Pan, who has some two decades of experience in Hong Kong.

For the past five years, Pan has focused on so-called Hong Kong drifters, a mostly professional class who plan to be in the city long term and lack permanent residency but may be working toward it. Hong Kong is thought to be home to about 350,000 such people.

On Oct. 25, the chief executive delivered his second policy address, an annual speech that sets the political agenda in the city. Lee adjusted a regime of property controls intended to keep a lid on prices that dates back to the global financial crisis. Two key stamp duties that previously added 30% to a purchase price would be cut in half, he said.

Lee also beefed up talent incentives, announcing certain professionals that move to Hong Kong would not need to pay stamp duty so long as they subsequently obtained Hong Kong permanent residency (HKPR).

For long-term renters from the Chinese mainland, it should all have been good news. But Caixin has found that despite an uptick in the city’s new residential transactions, many still remain hesitant to buy.

“Mortgage rates are too high right now,” said Chen Yuan, a financial services professional who has worked in the city for six years. “There’s no good reason to take out a loan during a property market downturn.” Chen said turbulence in her industry, where her husband also works, was a key factor in their decision to put off buying a house.

Hong Kong’s property market continues to slump as rates rise and capital flees in search of safer investments like fixed deposits. The uncertainty has dented confidence as more potential buyers adopt a wait-and-see posture. A recent UBS report predicts the drop in property prices will reach 5% this year and accelerate to 10% in 2024.

Hong Kong’s property prices remain some of the world’s highest. They rose continuously, with occasional short-term corrections, from the global financial crisis of 2008 up until a historic annual decline in 2022. But the recent shift, and the absence of a sustained post-pandemic bounce, has many investors asking where the market is headed and what a recovery will look like.

Less than expected

Lee’s changes announced in the policy address fell short of market expectations. “This is not even half of what was expected,” said Joseph Tsang, chairman of the Hong Kong branch of global developer giant JLL.

“Over the past year, interest rates have risen significantly, various economies have shown moderated growth and transactions of the local residential property market have declined alongside a downward adjustment of property prices,” Lee said in his address.

He said an expected increase in housing supply in the near term justified easing the measures intended to cool demand. Those measures include three taxes on property sales: the special stamp duty (SSD), the buyer’s stamp duty (BSD) and the new residential stamp duty (NRSD).

Lee said that from Oct. 25 buyers would only need to wait two years before reselling if they wanted to avoid an SSD of 10%. Previously, homeowners were required to wait three years if they wanted to avoid the additional tax.

A continued rise in mortgage rates has discouraged potential buyers from entering Hong Kong’s property market.   © Reuters

Long an attractive place for mainlanders to park their money and hedge against risks closer to home, Hong Kong’s speculative inbound capital had nonetheless come in waves. A key instance was after the 2008 global financial crisis, when quantitative easing made the city’s property market an attractive proposition. The SSD was introduced in 2010 in part to combat that. The BSD followed in 2012 as a tax on purchases by non-HKPRs.

In his October policy speech, Lee also announced that the BSD and NRSD would be cut in half to 7.5%. The change was intended to ease the financial burden of housing purchases on HKPRs and non-HKPRs alike, he said.

Finally, a refundable upfront payment of the BSD and NRSD would be scrapped for “inbound talent,” meaning incoming professionals who eventually obtained HKPR. Lee said this was an “enhancement” of the refund arrangement, introduced last year, under which the cohort did have to pay the duties up front, but were entitled to a refund after they had lived in Hong Kong for seven years and obtained HKPR.

Rosanna Tang, executive director and Hong Kong head of Research at Cushman & Wakefield, said the new stamp duty exemptions for incoming talent were in line with the government’s broader efforts to remove barriers for individuals interested in developing their careers in Hong Kong.

Market carnage

Last year, Hong Kong’s preowned home price index fell 15.6%, with transaction volumes falling nearly 40%. Then, in the first four months of 2023, the property market experienced a rapid recovery after the border reopening with the mainland. From January to April, its preowned house prices rose for four consecutive months.

It would not last. According to data from Cushman & Wakefield, there were less than 9,200 housing sales in the third quarter of 2023, 25% down on the prior quarter and 21% down on the prior year. Edgar Lai, a senior director of valuation and advisory at Cushman & Wakefield in Hong Kong, told press that the third quarter, usually peak transaction season, was the worst he had seen in more than 20 years in the industry.

The strong stock market rebound at the end of 2022 also petered out. Hong Kong stocks have been hemorrhaging since then, disrupting the traditional investment approach of making money on the stock market and investing it in property.

Meanwhile, the continued rise in mortgage rates has discouraged potential homebuyers from entering the market. The U.S. Federal Reserve began a round of successive interest rate hikes from near zero at the beginning in March 2022 to a range of 5.25% to 5.5% in September this year.

Facing the high cost of funds, several major commercial banks in Hong Kong started to raise their prime lending rates for mortgage loans in September 2022. After the latest hike in July 2023, HSBC, Bank of China and Hang Seng Bank currently have a prime rate of 5.875%, representing a cumulative increase of 0.875 of a percentage point. Smaller banks such as Bank of East Asia and Citibank have raised their prime rate to 6.125%.

Meanwhile, Hong Kong’s tourism and retail sectors recovered less than expected following the city’s reopening. Locals cleared out in favor of tourist destinations abroad. Dampened by the sputtering Chinese economy, few inbound tourists replaced them. In the first eight months of 2023, only 20 million tourists visited Hong Kong, less than half as many as in the comparable period of 2018.

Sellers quick to offload

As U.S. interest rates remain high, the interest on Hong Kong dollar fixed deposits continues to rise steadily. Major banks have all raised their three-month fixed deposit rates to 4.5%, with some smaller banks offering more than 5% interest on large fixed deposits.

Timed deposits, which tend to offer lower returns than stocks and bonds and lack flexibility, have become the de rigueur place to park cash from a housing sale.

Meanwhile developers are struggling with unsold inventory. According to data from Centaline Property Hong Kong, unsold inventory of new private residential properties surged to 20,483 units in the third quarter of 2023, reaching a near 20-year high.

In fact, since the second half of this year, the market has seen a number of residential properties at lower prices. In early August, CK Asset Holdings, the property flagship of Hong Kong billionaire Li Ka-shing, sold its Coast Line II project in Yau Tong at a discounted price, causing a stir in the primary market.

Road to recovery

In the six weeks since the changes, the transaction volume of new residential properties has noticeably rebounded, but the downward trend in property prices continues.

Between Oct. 25 and Nov. 25, the transaction volume of new residential properties was up by around 2.8 times month-on-month, reaching 678 transactions, according to Centaline.

Meanwhile, an index for private flats from the Rating and Valuation Department fell by 2.2% month-on-month in October, marking the sixth consecutive monthly decline.

While the uptick in new housing sales may be related to the policy changes, it could also be down to developers aggressively promoting the sale of new properties at low prices, analysts said.

Derek Chan, head of research at Ricacorp Properties, believes low-cost launches by primary developers will continue to put pressure on preowned home prices.

Chan predicts that with a significant inventory of new residential properties, developers will continue to adopt a “quantity before price” strategy with low-priced launches in December. As a result, homeowners seeking to resell will need to do so at lower prices. He expects Hong Kong property prices to decline by 7% for the full year.

Ken Yeung, head of property research at Citi in Hong Kong, predicted that an improvement in economic conditions and interest rate cuts next year could see Hong Kong property prices bottom out in the first half of 2025.

Source : NikkeiAsia

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A key player in the housing market has said it expects asking prices to track around 1% lower nationally by the end of next year, as the market continues to normalise after post-Covid freneticism.

Sellers will likely have to price more competitively to secure a buyer next year and agents will have to work harder especially when it comes to first-time buyers as affordability remains stretched, according to Rightmove (RMV.L).

“The housing market is made up of thousands of local markets, each with their own unique dynamic of supply and demand,” said Rightmove’s property expert Tim Bannister. “In areas with more discretionary sellers and fewer homes for sale, we may see new seller asking prices remain flat, or even very slightly increase compared to this year.”

The platform thinks mortgage rates will become more predictable — but remain high, meaning middle-market and lower end buyers will struggle. The average two-year fixed rate is now 5.52% and average five-year rate is 5.11%.

The real estate platform used a predictive model to forecast, based on millions of supply and demand pricing data, as well as a panel of experts.

A year ago, it predicted average new seller asking prices would drop by 2% in 2023, and they are currently 1.3% lower year-on-year.

Looking back at this year, the average time for a seller to find a buyer has jumped from 45 days to 66 days. Meanwhile, some monthly price falls have been greater than the usual seasonal trends this year.

The level of price reductions has increased during 2023, with 39% of properties now seeing a price reduction during marketing compared to 29% last year, and 34% in 2019. New sellers will need to compete with their cut-price neighbours, and work with their agent to start their marketing with a competitive price, rather than starting too high and needing to reduce later.

Research shows that pricing right at the outset maximises the initial impact among local buyers and gives new sellers a much greater likelihood of a successful sale.

Buyers are much more likely to see a choice of homes for sale in their area that suits their needs compared to the stock-starved pandemic years, Rightmove said. Buyers coming to market in 2024 are in a strong position to negotiate on price and take more time to choose the home that’s right for them.

However, the number of available homes for sale has only just increased to pre-pandemic levels and there are no signs of a wave of new listings which would create a glut of homes for sale. With more choice and fewer buyers on the ground, it will be those sellers who are willing and able to price temptingly who will attract buyer’s attention.

Meanwhile, UK house prices rose in November in the third consecutive monthly increase as the market now expects interest rates to start coming down. The average cost of a home rose 0.2% in November from the month earlier to £258,557, Nationwide Building Society said on Friday. From a year ago, prices fell 2%, which was the strongest reading in nine months.

Earlier last week Zoopla published its house price index for November showing houses were being sold at steep discount. In London properties are selling for £25,000 less than the asking prices, while in the rest of the country sellers were lowering prices by £18,000.

Source : YahooFinance

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Melbourne house prices are tipped to rise up to $37,000 in 2024.

But a landlord exodus driven by rising state government taxes that is part of the reason more homes have hit the the market than in any other city over the past year will see the city lag behind almost every other capital.

The PropTrack Property Market Outlook Report has forecast 1-4 per cent for the city’s property market in the next 12 months that could bring the median house price to more than $950,000.

PropTrack economic research director Cameron Kusher said while Melbourne was expected to attract less home price growth than Sydney, Brisbane, Adelaide and Perth, it could potentially double the about $17,000 (1.9 per cent) growth the Victorian capital unexpectedly notched in 2023. They had been forecast to decline 7 per cent this year.

Mr Kusher said despite the fastest increase to interest rates since at least the 1990s, rising costs to build new homes and Victoria accounting for a substantial portion of the nation’s incoming migration would combine to drive home values up.

“The fact we are at or near peak interest rate levels could see more people looking to buy next year,” he said.

Home price growth is on the cards in 2024, but Melbourne will lag behind other capitals.

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While the Outlook report has flagged a tough year for first-home buyers around Australia, Mr Kusher said record-low rental vacancy rates could drive some of them to find a way to buy a home and escape from increasingly uncertain tenancies.

Ironically, their chances might be improved by landlords selling off rental homes at an accelerated level this year, as Melbourne has more homes for sale than any other capital in part thanks to their exodus.

“There are quite a lot of investors looking to exit Melbourne and Victoria because there are quite a lot of taxes,” he said.

From next year, investment property owners will be hit with increased land tax costs as the state government implements a series of levies to try and recoup Covid-era budget losses.

Real Estate Buyers Agents Association of Australia Victorian representative Luke Assigal echoed the landlord sell off commentary and said he expected the trend could be even more pronounced as planned new taxes on investment and secondary properties came to fruition in the new year.

Homes like 2 Cunneen St in the Bendigo suburb of Long Gully could be set for price gains in 2024. The home is currently listed for $440,000-$480,000.

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Speaking as part of REBAA’s end of year analysis for 2023, Mr Assigal said he believed even an uptick in investor sales next year wouldn’t slow the market and predicted there could be as much as 6 per cent growth — about $55,000 for Melbourne’s $917,000 median-priced home.

But he said the fate of first-home buyers in the new year could rest with the Australian Prudential Regulation Authority, who he said could price many back into the market by reducing assessment rates for home loans from the current 3 per cent above the home loan rate of the day.

An interest-rate cut could also drive demand, and Mr Assigal said either scenario could make Melbourne’s undervalued far west, from Werribee to Hoppers Crossing, and outer northern suburbs, like Epping, hot property.

He added that regional areas around Ballarat, followed by Bendigo and Geelong, could also benefit from squeezed homebuyer budgets.

Source : RealEstate.com.au

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Australia’s median property value is now at a record high of $753,654.

But experts are expecting prices to stabilise next year.

Property analytics company CoreLogic research director Tim Lawless said the 2024 housing market was shaping up to be very different.

“[There are] expectations that value growth will be lower and more diverse from region to region and across housing types,” he said.

“We don’t expect to see a material lift in housing activity until interest rates reduce, and that isn’t likely until the second half of next year.”

But before we get into next year, let’s look at Core Logic’s property figures from November.

What’s the most expensive city to buy in?

Data from CoreLogic says Sydney is still the most expensive place to buy a property, with a median house value of almost $1.4 million.

But in terms of how capital city property prices changed in November, Perth topped the list.

Meanwhile, prices decreased a fraction in Melbourne, Hobart and Darwin.

Here’s a quick rundown of how prices changed in November:

• Perth: Up by 1.9 per cent
• Brisbane: Up by 1.3 per cent
• Adelaide: Up by 1.2 per cent
• Canberra: Up by 0.5 per cent
• Sydney: Up by 0.3 per cent
• Melbourne: Down by 0.1 per cent
• Hobart: Down by 0.1 per cent
• Darwin: Down by 0.3 per cent

Now let’s get a more detailed look at the capital cities:

Adelaide

Monthly change: 1.2 per cent increase

Adelaide median house value: $756,989

Median unit value: $479,428

Since Adelaide property prices bottomed out in March 2023, they have risen 8.7 per cent.

Meanwhile, rental vacancy rates remained extremely tight in November at 0.3 per cent — the lowest of all capital cities.

Brisbane

Monthly change: 1.3 per cent increase

Brisbane median house value: $870,526

Median unit value: $552,332

Alongside Adelaide and Perth, Mr Lawless said Brisbane property values continued to show remarkably low levels of advertised supply while purchasing activity was above average levels.

“This imbalance between available supply and demonstrated demand is keeping strong upward pressure on housing values across these markets, despite the downside factors leading to weaker housing market conditions across the lower eastern seaboard,” he said.

Canberra

Monthly change: 0.5 per cent increase

Canberra median house value: $965,378

Median unit value: $590,425

Darwin

Monthly change: 0.3 per cent decrease

Darwin median house value: $572,504

Median unit value: $380,761

Hobart

Monthly change: 0.1 per cent decrease

Hobart median house value: $702,722

Median unit value: $526,961

Hobart was one of three capital cities to record a decline in values over November, albeit a small one.

Looking at annual figures, Hobart dwellings have recorded a 3 per cent decline.

Meanwhile, rental conditions have eased in Hobart with vacancy rates sitting at 1.9 per cent — the highest across the capitals.

Melbourne

Monthly change: 0.1 per cent decrease

Melbourne median house value: $943,725

Median unit value: $610,490

Melbourne’s home values slipped 0.1 per cent in November, their first monthly decline since hitting the trough in January this year.

Mr Lawless said while the Melbourne Cup Day rate rise took some heat out of the market, there were other factors at play.

“Rising advertised stock levels, worsening affordability and persistently low consumer sentiment are also acting as a drag on value growth in some markets, such as Melbourne.”

Perth

Monthly change: 1.9 per cent increase

Perth median house value: $676,910

Median unit value: $457,296

It’s full steam ahead for Perth property values, rising 1.9 per cent in November — the largest monthly gain since March 2021.

The annual growth rate of property prices is now up 13.5 per cent, eclipsing that of Brisbane (10.7 per cent) and Sydney (10.2 per cent).

Listings are almost 40 per cent below their five-year average for this time of year.

Sydney

Monthly change: 0.3 per cent increase

Sydney median house value: $1,397,366

Median unit value: $836,220

Growth in Sydney home values slowed sharply in November, lifting 0.3 per cent, which is less than half the 0.7 per cent gain recorded in October.

November’s modest rise was also the smallest monthly increase since February this year.

Mr Lawless said he believed Sydney’s housing market could be on course for a dip as early as next month.

What’s the housing market forecast for 2024?

PRD chief economist Diaswati Mardiasmo says things will get “more unaffordable” in the new year but we could see “breakthroughs” towards the end of the year.

She says the outlook will be driven by a number of trends.

“We are going into the new year with low supply and increasing demand, a higher cash rate, lower savings and people prioritising primary needs versus secondary.

“At the same time, governments are trying to stimulate supply and people are also ‘getting used to’ the higher cash rates and changing economic landscape.

“Therefore, the first quarter may not feel any different, other than perhaps some areas starting to see a recovery in house prices.

“This will feel like there’s no hope as everything becomes more unaffordable.

“However, as we innovate through this resilience we will start to see some breakthroughs, all of which we will feel more towards the later part of 2024 as inflation and the cash rate lower.”

Source : ABCNews

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Year 2024 will see investors flock to the “resilient” markets which can ride out economic fluctuations, says a proptech CEO.

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(Yicai) Dec. 6 — A number of cash-rich Chinese distillers and coal miners have started to buy up land and properties in the country amid a sluggish real estate market.

An affiliate of liquor maker Jingpai paid CNY3.5 billion (USD490 million) for a sought-after land plot in Suzhou, eastern Jiangsu province, in October at a premium rate of 15 percent. The company has bought up a lot of property in Nanjing and Suzhou this year and is cooperating with real estate developers to let it operate them.

And coal miner Inner Mongolia Manshi Coal Group splashed out CNY4.1 billion (USD575.8 million) on three luxury apartment buildings in Shanghai. Two other coal producers, Erdos Group and Huineng Group, also recently spent CNY2.6 billion and CNY6.2 billion, respectively, on property in Shanghai.

Now is the time to pick up bargains as the real estate market is still stagnant and there are stimulus policies that should soon take effect, Zhang Hongwei, founder of Jingjian Consulting, told Yicai. Companies with deep pockets can buy up properties with a long-term view. They should look for prime properties in good locations that have a low price, he added.

Whether it is time to bargain hunt or not depends on the situation and it is still necessary to pay attention to market and policy risks when getting involved in real estate because of the volatile nature of the market, said Bai Wenxi, chief economist of IPG China.

Real estate is a capital-intensive industry with a lack of liquidity so investors need to carefully weigh up the pros and cons before they make a decision, he said.

Source : YiCaiGlobal

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