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Short Supply of Homes to Push Global Property Prices Higher at Slower Pace

Cecil Vega — Sun, 10 Dec 2023 10:46:15 +0000

BENGALURU, Dec 5 (Reuters) – Global property prices in most major markets will rise over the next two years, albeit at a slightly slower pace than predicted three months ago as strong demand and tight supply overshadow higher interest rates, a Reuters poll found.

Home prices across the developed world have defied analysts’ expectations, as they predicted at the start of the year prices would register double-digit falls from COVID-19-era peaks. In most markets they will end the year on a positive note.

While price rises are expected to continue into next year and 2025, higher mortgage rates and the lack of supply of affordable homes will restrict prices from rising too much.

The latest Reuters polls of over 100 housing market strategists taken between Nov. 15 and Dec. 4 showed property prices rising in five of the eight major property markets surveyed for next year and in all of them in 2025.

“Values are underpinned at the moment by the fact there’s low stock availability and that is defending prices. The fact prices haven’t fallen very much and actually in many markets are beginning to rise again is down to the fact the stock is very low,” said Liam Bailey, head of research at Knight Frank.

“Very few vendors are bringing their properties forward into the market at the moment because they’re either trying to protect their current debt costs by not moving properties and not porting their mortgages,” he said.

Of the major housing markets polled – U.S., Britain, Canada, Australia, New Zealand, Germany and Dubai – prices were forecast to go up between 1.3% to 5% in 2025, while estimates for India were set to surpass 7%.

That outlook was still good news for property owners who at the beginning of the year were anticipating a significant dip in value of their homes over expectations the global economy will enter a recession this year.

But that would also mean affordability will remain a concern, especially for first-time buyers who for years have been waiting on the sidelines to get on the property ladder.

Still, a strong 71% majority, 65 of 91 housing strategists, who answered an additional question said purchasing affordability for first-time homebuyers will improve over the coming year.

While many analysts, 51 of 84, who answered a separate question said the supply of affordable homes will improve over the coming two to three years, only 10 among them expected it to improve to a point where it can sufficiently address the demand.

“If you look at construction cost plus land costs, it’s difficult to deliver affordable housing viably. I think lack of housing is probably likely to be a feature of most developed markets…for the medium-term (5 years),” added Knight Frank’s Bailey.

Average U.S. home prices were seen rising 2.7% this year and 1.8% in 2024. That was higher than a September survey where prices were forecast to flat line in both years.

Australian home prices, which have recovered all of their 2022 losses since finding a floor in January, were expected to rise 8.0% this year and another 5.0% next year.

New Zealand property prices were forecast to rise 4.0% next year and 5.0% in 2025 compared with expected rises of 5.0% and 6.0% in an August poll.

While home prices in Germany and Britain were predicted to fall 2.8% and 2.0% respectively next year, in both markets they were forecast to rise around 2-3% in 2025.

The once red-hot Canadian housing market, where prices surged about 50% during the coronavirus pandemic, is expected to stagnate in 2024 and then rise 3.3% in 2025.

Buoyed by demand from high earners, home prices in India will beat consumer inflation to rise 6.8% this year and next.

Source : Reuters

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Higher Interest Rates Are Shattering Housing Dreams Around the World

Aaron Maxwell — Wed, 22 Nov 2023 13:38:31 +0000

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.

Global Mortgage Rates Soar

The cost of home loans has more than doubled in many places

Source: Bloomberg

NOTE: Current rates are the latest available, as of these months: June (China, Australia); August (Hong Kong); September (South Korea); October (UK, New Zealand); November (Canada, US)

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.

Homes under construction in Sacramento, California.Photographer: David Paul Morris/Bloomberg

‘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.”

Most US Homeowners Have Locked in Low Borrowing Costs

Mortgage holders have less incentive to move and take on higher rates

Source: Intercontinental Exchange Inc.

Notes: Interest rate represents bottom of range (e.g., 2.000% = [2.000%-2.124%]). Data for active mortgages as of end of September.

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.

Homes in Wellington, New Zealand.Photographer: Mark Coote/Bloomberg

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.

House Payments Take a Bigger Bite Out of Kiwi Budgets

Average interest servicing costs as a share of mortgaged households’ disposable incomes

Sources: Stats NZ, RBNZ Income Statement survey, RBNZ estimates

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.”

A residential building under construction in Montreal.Photographer: Graham Hughes/Bloomberg

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.”

The Yield Advantage for Toronto Condos Is Gone

Real estate loses its appeal compared with other investments

Source: BMO Economics

*Yield is the income offered by an asset relative to its current price

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.

Residential properties in Guildford, UK.Photographer: Jason Alden/Bloomberg

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.

Newly constructed residential apartment buildings in Gimpo, South Korea.Photographer: SeongJoon Cho/Bloomberg

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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Global Real Estate Fundraising Slumps 71% With Rate Risk

Aaron Maxwell — Fri, 03 Nov 2023 12:44:45 +0000

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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Boe Sees Global House Prices Falling, Warns About China Risks

Victor Lyons — Mon, 30 Oct 2023 13:05:07 +0000

THE Bank of England warned that house prices are likely to fall further in many economies and flagged significant downside risks in the Chinese property market.

A further deterioration in activity and prices could pose risks to the Chinese economy and financial sector, which could spill over into the UK and other jurisdictions. The central bank disclosed this in a record of its Financial Policy Committee (FPC) meetings held in late September and early October, which was released on Tuesday (Oct 10).

The FPC will continue to monitor closely developments in Chinese and Hong Kong property markets ”and the potential for spillovers to UK financial stability,” the committee said.

The panel also noted that UK household finances remain under pressure after successive BOE interest-rate increases since 2021 to tame inflation.

The share of households with high debt-servicing ratios is expected to keep rising next year. Yet this level will likely stay below the historic peak reached during the global financial crisis in 2007, the committee predicted.

In the UK, the proportion of new mortgage lending for 35 years or more has increased by 8 percentage points to 12% between the first quarter of 2021 and the second quarter of 2023. For private renters in Britain, rents rose by 5.5% in the year to August.

New floor space sold in China each month has fallen by nearly a half from the levels seen in January to June in 2021, and real estate investment has dropped by nearly a fifth in August year-on-year. BLOOMBERG

Source : Bloomberg

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Global Real Estate Represents the World’s Most Significant Store of Wealth in 2022

Julian Berry — Thu, 19 Oct 2023 12:56:42 +0000

In 2022, the value of all global real estate – residential, commercial, and agricultural land – reached $379.7 trillion, maintaining the asset’s position as the world’s most significant store of wealth, according to research by Savills.

The global real estate services provider points out that real estate is more valuable than all 2022 global equities ($98.9 trillion) and debt securities ($129.8 trillion) combined, and it is almost four times that of global GDP ($100.6 trillion). The value of all gold ever mined, by comparison, stands at $12.2 trillion – just 3% of the value of global real estate.

Notwithstanding the fact that overall, the total value of global real estate in 2022 decreased 2.8% from 2021, when it was $390.5 trillion, it is still up 18.7% on 2019 pre-Covid levels. Growth across all asset classes (real estate, equities etc) slowed in 2022 compared to 2020-2021, according to the international real estate advisor, as inflation rose, and interest rates spiked.

“Positively however, according to the research report, the value of all sectors of real estate, remain up on their 2020 levels. Notably, in terms of the different property sectors, residential is by far the largest, accounting for 76% of all global real estate value, and its value stood at $287.6 trillion in 2022, a decrease of 1.6% on 2021 levels ($292.2 trillion). Here in South Africa, it is estimated that residential property is notionally worth some R6.6 trillion (approximately USD343 billion),” comments Dr Andrew Golding, chief executive of the Pam Golding Group, Savills’ exclusive residential real estate partner in Africa.

Savills says that commercial real estate value stands at $50.8 trillion (2021 comparison: $51.7 trillion), comprising 13% of total real estate value, and ahead of the total value of agricultural land at $41.3 trillion (2021 comparison: $46.6 trillion) which accounts for 11%.

Paul Tostevin, head of Savills World Research which carried out the analysis, comments: “Despite upheavals in the markets, and some speculation about the future of some sectors, real estate as a whole continues to be the largest concentration of wealth in the world.”

“Residential property dominates, and between 2019-2022 its value grew 21.1% – only outperformed by gold – as it benefited from ultra-low interest rates over this period, coupled with a focus on the home in many countries during lockdowns. It’s clear that given the under-developed nature of real estate in some locations, on a long-term basis growth will continue as more stock is added around the world.”

As of 2022, China was the world’s most valuable real estate market, accounting for 26% of total global real estate value (residential and commercial), followed by the United States which accounts for 19%. Savills notes, however, that Canada (7th) and Australia (10th), both countries that have seen significant growth in residential prices in recent years, rank ahead of much more populous nations for total real estate value. India, the world’s most populous country, is in 14th position by value, demonstrating the potential for future growth in this market.

Adds Dr Golding: “Being a nation with a predominantly youthful population, there is a positive demographic dividend for the South African residential market as the proliferation of new, smaller households in the key urban areas ensures ongoing, strong demand for accommodation. Increasingly this is being met via the conversion of commercial properties into mixed-used residential developments as well as new homes in coastal provinces as a result of semigration, but either way, South Africa’s youthful demographic profile will provide a fundamental underpinning for the local residential market as the influx of new, young homeowners ensures ongoing demand, in turn facilitating the movement of existing homeowners up the property ladder.”

Source : PropertyWheel

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Australian Housing Market Records August Surge of New Property Listings, Defying the 2022 Slowdown

Tyrone Santiago — Sun, 01 Oct 2023 01:44:43 +0000

The Australian property market saw new listings leap 9.4% in August, according to the latest Ray White listings report written by Ray White data analyst, William Clark.

This will be music to the ears of many property-buying hopefuls, particularly in view of July’s sauntering pace, but total listing figures are not as rosy. Recent CoreLogic data showed that while new listings rose across winter, total advertised supply levels are still well below last year, across the combined capitals.

Early start to the spring selling season

New listings tend to pick up around spring, while the winter months are typically slower.

However, with the solid uplift in new listings across August, experts have declared that the spring selling season has begun early.

New listings rose again last month

Source: Ray White.

Although new listings petered out in the latter half of 2022, current trends indicate that it will be improbable that 2023 will follow suit.

Indeed, all major cities recorded growth from July, signally how strong this trend was across Australia. Notably, Melbourne and Sydney reported a significant increase in new listings.

The Agency CEO Geoff Lucas told The Property Tribune that listings across the East Coast of Australia were up 22% on last year, with solid momentum in the previous seven days.

“This is in line with our sales growth which is also up 22% on last year and we anticipate that listings growth will continue in the coming months,” he said.

New listings movements for capital cities

Source: Ray White.

Listings in regional Australia followed the same pattern, having recorded the same surge in new listings. Regional Queensland remained the most dominant non-capital city market, with the Gold Coast bringing in substantial new monthly listings.

However, new listings in regional Australia were still trailing behind the low listings of 2022.

New listings movements for regional Australia

Source: Ray White.

Ray White listing authorities, which refer to the point when vendors have signed a listing but the listing is still not advertised, have been essentially unchanged, as authorities did not rise in August as they did in July.

Authorities are considered a strong lead indicator for future listings, having around a week’s lead before authorities become published listings.

Listing authorities

Source: Ray White.