LONDON, Feb 7 (Reuters) – British house prices were unchanged in January after falling in month-on-month terms in each of the previous four months as borrowing costs rose, mortgage lender Halifax said on Tuesday.
The annual rate of house price growth slowed to 1.9%, the weakest increase in three years, Halifax said.
Britain’s housing market saw a surge in demand from buyers during the coronavirus pandemic but a sharp rise in interest rates over the past year and the squeeze on households’ budgets caused by high inflation has hit the momentum.
Kim Kinnaird, a director at Halifax Mortgages, said the trend of higher borrowing costs hitting demand was likely to continue in 2023.
“For those looking to get on or up the housing ladder, confidence may improve beyond the near term,” she said.
“Lower house prices and the potential for interest rates to peak below the level being anticipated last year should lead to an improvement in home-buying affordability over time.”
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In London, where the housing market has underperformed those of other regions of the country, prices in January were unchanged from the same month last year after rising by nearly 3% in the 12 months to December, Halifax said.
Rival mortgage lender Nationwide said last week its measure of house prices dropped by a bigger-than-expected 0.6% in January and was 3.2% below its peak in August.
As well as the Bank of England’s increases in interest rates since December 2021, there was a major disruption to the mortgage market in late September and October following former prime minister Liz Truss’s “mini budget”.
Mortgages approved in December fell to their lowest since the 2008-09 global financial crisis, excluding the start of the COVID-19 pandemic when there were strict lockdown restrictions, the BoE said last week.
Martin Beck, an economist with forecaster EY Item Club, said January’s flat-lining of prices, as recorded by Halifax, might prove only a temporary pause in a trend of falling prices.
“Although mortgage rates have dipped from post-mini-Budget peaks, they’re still at their highest in a decade,” he said.
Writing by William Schomberg; graphic by Sumanta Sen; editing by Sarah Young and Arun Koyyur
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LONDON, Feb 1 (Reuters) – British house prices dropped by a bigger-than-expected 0.6% in January and are now 3.2% below their peak in August, following a surge in borrowing costs and broader inflation pressures, mortgage lender Nationwide Building Society said on Wednesday.
January’s decline in house prices was the fourth drop in a row and twice the size expected in a Reuters poll of economists, adding to signs that the market is slowing rapidly.
Interest rates have risen sharply since December 2021 and there was major disruption to the mortgage market in late September and October following former prime minister Liz Truss’s “mini budget”, which set market interest rates soaring.
“It will be hard for the market to regain much momentum in the near term as economic headwinds are set to remain strong, with real earnings likely to fall further and the labour market widely projected to weaken as the economy shrinks,” Nationwide chief economist Robert Gardner said.
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Nationwide forecast in December that house prices would fall 5% in 2023.
House prices in January were 1.1% higher than a year earlier, Nationwide said, the smallest year-on-year increase since June 2020 and down from a 2.8% increase in December. Economists polled by Reuters had expected a rise of 1.9%.
British house prices soared by more than a quarter during the COVID-19 pandemic, boosted by ultra-low interest rates, tax incentives and broader demand for more living space during lockdown, which was seen in other Western countries too.
However, the boom has now gone into reverse, accelerated by disruption to lending since the mini-budget.
The Bank of England reported on Tuesday that the number of mortgages approved in December fell to its lowest since the global financial crisis, excluding the very start of the COVID-19 pandemic when there were strict lockdown restrictions.
Gardner said this fall reflected a drop in mortgage applications after the mini-budget, and that it was too soon to know if the volume of house purchases would recover.
While lenders are now more willing to offer mortgages than just after the mini-budget, the BoE has steadily raised interest rates, and is expected to increase its main rate by half a percentage point to 4% on Thursday, the highest since 2008.
Reporting by David Milliken; Editing by Sarah Young and Sharon Singleton
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NEW YORK, Jan 31 (Reuters) – Memory chip maker Western Digital Corp (WDC.O) said on Tuesday it will receive $900 million through a convertible preferred stock deal from private equity firm Apollo Global Management Inc (APO.N) and hedge fund Elliott Management Corp.
Western Digital said the preferred stock it sold to Apollo and Elliot has a conversion price of $47.75 per share, which is approximately a 9% premium on its closing price of $43.95 on Tuesday. It will also pay a dividend starting at 6.25% per year.
Last year, Western Digital launched a review of strategic alternatives, including options for splitting off its flash-memory and hard-drive businesses, after activist Elliott disclosed a stake of nearly $1 billion in the company and pushed it to separate those businesses.
On Tuesday, Western Digital CEO David Goeckeler said the partnership with Apollo and Elliott would help “facilitate the next stages of Western Digital’s strategic review.”
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“We look forward to working together in advancing our goal of creating value and finalizing the best possible strategic outcome for our shareholders,” said Goeckeler.
The latest investment is a precursor to a potential merger between Silicon Valley-based Western Digital and Japan’s Kioxia Holdings Corp, according to people familiar with the matter. The sources, who requested anonymity as these discussions are confidential, said the talks between Western Digital and Kioxia are still active.
The two companies were in merger talks in 2021 before the negotiations cooled off.
Bloomberg reported on the talks between Western Digital and Kioxia earlier.
Western Digital and Kioxia jointly produce NAND chips, which are widely used in smartphones, TVs, data center servers and public announcement display panels.
Western Digital’s shares fell nearly 7% in trading after market hours.
Qatalyst Partners, Lazard and J.P. Morgan are serving as Western Digital’s financial advisers and Skadden, Arps, Slate, Meagher & Flom LLP is serving as Western Digital’s legal adviser. Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as the Apollo funds’ legal adviser, while Gibson, Dunn & Crutcher LLP is serving as Elliott’s legal adviser.
Reporting by Chibuike Oguh in New York; Editing by Anirban Sen and Lincoln Feast
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SYDNEY, Feb 1 (Reuters) – Australia’s house prices extended declines for the ninth straight month in January amid high mortgage rates, a drag on household wealth that will further erode consumer spending and add to economic stress.
Figures from property consultant CoreLogic on Wednesday showed prices nationally fell 1.0% in January from December, when values dropped 1.1%.
Prices were down 7.2% from a year earlier. They were also 8.9% lower from their April peak, making last month the largest and fastest decline in values since at least 1980 as the Reserve Bank of Australia embarked on the most aggressive tightening campaign in modern history.
The monthly fall was led by Sydney where prices slid 1.2% in the month to be down 13.8% on the year, while Melbourne dropped 1.1% on the month and 9.3% on a year earlier.
Prices across the combined capital cities fell 1.1% in the month, while outlying regions – which have performed better in this housing downturn – lost 0.8%.
Tim Lawless, research director at CoreLogic, does not expect listing and purchasing activity would return to average levels until consumer sentiment starts to improve, after prices suffered the biggest fall since 2008 last year.
New listings in capital cities in January were 22.2% lower than over the same period last year, implying that most home owners seem to be prepared to wait this downturn out.
“Until Australians have a higher level of confidence with regards to their household finances and the outlook for the economy, it’s likely they will continue to delay major financial decisions,” Lawless said.
The RBA has lifted rates by 300 basis points to a 10-year high of 3.1% to curb red-hot inflation. Investors are wagering rates would rise by another 25 basis points next week when the Board meets for the first time this year. ‘
Consumers are already feeling the pinch from rising borrowing costs and sky high inflation, with December retail sales tumbling the most in more than two years, in a warning for the economy.
Reporting by Stella Qiu; Editing by Jacqueline Wong
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STOCKHOLM, Jan 31 (Reuters) – The effects of rising interest rates on the highly indebted commercial real estate sector is the main risk to financial stability, but a crash is unlikely, Swedish policy makers said on Tuesday.
War in Ukraine and the lingering effects of the pandemic have sparked a surge in inflation and a rapid rise in interest rates for companies – and households – that took on big debts during a decade of ultra-easy monetary policy.
Commercial property companies need to refinance around 300 billion Swedish crowns ($28.69 billion) of loans over the next couple of years. But risk appetite among banks and investors has cooled and some could face problems rolling over loans at much higher rates.
“There has been an unsustainable build up of risk in recent years and we need to see a correction,” Susanna Grufman, the acting head of the Financial Supervisory Authority, said during a hearing in parliament.
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“What is important from a financial stability perspective is that this (correction) doesn’t happen too fast.”
Spreads have already widened on debt issued by commercial real estate firms and some have started reducing debt by selling off parts of their portfolios.
Property companies account for around 44% of banks’ commercial lending, figures from the Riksbank showed.
The FSA reckons banks could see credit losses of up to 45 billion crowns in a sharp downturn, mainly caused by unlisted commercial property firms.
Sweden’s retail housing market is also a worry. Prices have fallen about 15% over the past year amid soaring mortgage rates and cost of living pressures.
But authorities do not expect another financial crisis like that which hit Sweden in the early 1990s when the central bank policy rate was hiked to 500%.
Over the last decade, lending regulations have been tightened and banks’ buffers against credit losses are stronger.
Authorities have better tools to deal with problems that materialize, including winding up banks that get in trouble, Karolina Ekholm, the head of Sweden’s Debt Office, said.
Furthermore, the current downturn is expected to be relatively short and mild, meaning unemployment is not expected to surge.
Nevertheless, adjustments in the commercial property sector and tumbling house prices will be a challenge for banks.
“Debts don’t go away. They need to be paid,” Riksbank Governor Erik Thedeen said. “The level of debt is a challenge and I don’t think we can exclude a pretty nasty development.”
($1 = 10.4149 Swedish crowns)
Reporting by Simon Johnson; Editing by Christina Fincher
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FRANKFURT, Jan 25 (Reuters) – The European Union’s risk watchdog warned on Wednesday that market stress from a potential sharp downturn in the European commercial real estate sector could morph into systemic risk for banks that may lead to higher capital needs.
Supervisors have long warned that the bloc’s real estate market is at a turning point after a lengthy boom and commercial property was especially vulnerable as a cyclical downturn is exacerbated by changes in office use habits after the pandemic.
The European Systemic Risk Board has now issued a fresh recommendation to national and European Union authorities to monitor risks and get lenders to properly assess collateral while setting aside appropriate provisions.
“The sector is currently vulnerable to cyclical risks related to heightened inflation, a tightening of financial conditions limiting the scope for refinancing existing debt and taking new loans, and the pronounced deterioration in the growth outlook,” the ESRB said in a statement.
Climate-related economic policies such as changing building standards, a shift towards e-commerce and increased demand for flexibility in leasable office space, are adding to the pressures, the ESRB, chaired by European Central Bank President Christine Lagarde, said.
The recommendations come after the ESRB already sent a warning in September about rising default risks in he commercial real estate.
The worry is that a sharp downturn in the sector could have a systemic impact on the financial system and the broader economy by limiting banks’ lending capacity.
Lending to the sector is occurring at high loan-to-value ratios, which could rise even further if property valuations rise. This would then lead to higher provision and capital requirements, restricting banks’ ability to lend to others, the ESRB said.
An additional worry is related to liquidity mismatches in open-ended real estate investment funds, the ESRB added.
Funds therefore need to better align redemption terms and the liquidity of underlying assets and must assess risks arising from liquidity mismatch and leverage, it added.
Reporting by Balazs Koranyi; Editing by Emelia Sithole-Matarise
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LONDON, Jan 24 (Reuters) – Barclays (BARC.L) has appointed former Credit Suisse (CSGN.S) dealmaker Cathal Deasy as co-head of investment banking, the lender said on Tuesday, as Chief Executive C.S. Venkatakrishnan seeks to grow the business and plan for succession.
Deasy will work alongside Taylor Wright, the co-head of global capital markets, the British bank said.
The changes were part of the bank “fostering the next generation of leadership and thinking,” Venkatakrishnan, known internally as Venkat, said in a memo about the moves that was seen by Reuters.
Venkat is being treated for a form of cancer known as non-Hodgkin lymphoma, he said in November, adding that doctors are optimistic about his prognosis and that he would continue to be involved in the running of the bank.
Deasy left Credit Suisse a few weeks ago, just months after being promoted to regional co-head of its investment banking & capital markets (IBCM) unit.
At Credit Suisse, he managed some of the bank’s biggest client relationships in Europe, having spent nine years beforehand at Deutsche Bank (DBKGn.DE), according to the internal Barclays memo.
JF Astier and John Miller, who currently lead investment banking, are in “active dialogue” with Barclays about what roles they might now take, a Barclays spokesperson said.
Astier and Miller were promoted in 2021 to lead investment banking as part of a new management team.
Barclays’ investment bank has had a strong performance in recent quarters, thanks in part to a boom in fixed income trading, which has traditionally been one of its core strengths.
Recent results have been blighted however by a trading blunder last year that saw Barclays agree a penalty of $361 million with U.S. regulators for what they described as “staggering” failures that led the bank to oversell nearly $18 billion worth of investment products.
Reporting by Baranjot Kaur in Bengaluru and Lawrence White in London; Editing by Sriraj Kalluvila and Bill Berkrot
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NEW YORK, Jan 23 (Reuters) – Goldman Sachs Group Inc’s (GS.N) asset management arm will significantly reduce the $59 billion of alternative investments that weighed on the bank’s earnings, an executive told Reuters.
The Wall Street giant plans to divest its positions over the next few years and replace some of those funds on its balance sheet with outside capital, Julian Salisbury, chief investment officer of asset and wealth management at Goldman Sachs, told Reuters in an interview.
“I would expect to see a meaningful decline from the current levels,” Salisbury said. “It’s not going to zero because we will continue to invest in and alongside funds, as opposed to individual deals on the balance sheet.”
Goldman had a dismal fourth quarter, missing Wall Street profit targets by a wide margin. Like other banks struggling as company dealmaking stalls, Goldman is letting go of more than 3,000 employees in its biggest round of job cuts since the 2008 financial crisis.
The bank will provide further details on its asset plan during Goldman Sachs’ investor day on Feb. 28, he said. Alternative assets can include private equity or real estate as opposed to traditional investments such as stocks and bonds.
EARNINGS VOLATILITY
Slimming down the investments on a bank’s balance sheet can reduce volatility in its earnings, said Mark Narron, senior director of North American banks at credit rating agency Fitch Ratings. Shedding investments also cuts the amount of so-called risk-weighted assets that are used by regulators to determine the amount of capital a bank must hold, he said.
Goldman Sachs’ asset and wealth management posted a 39% decline in net revenue to $13.4 billion in 2022, with its revenue from equity and debt investments sinking 93% and 63%, respectively, according to its earnings announced last week.
The $59 billion of alternative investments held on the balance sheet fell from $68 billion a year earlier, the results showed. The positions included $15 billion in equity investments, $19 billion in loans and $12 billion in debt securities, alongside other investments.
“Obviously, the environment for exiting assets was much slower in the back half of the year, which meant we were able to realize less gains on the portfolio compared to 2021,” Salisbury said.
If the environment improves for asset sales, Salisbury said he expected to see “a faster decline in the legacy balance sheet investments.”
“If we would have a couple of normalized years, you’d see the reduction happening,” in that period, he said.
PRIVATE CREDIT
Clients are showing keen interest in private credit given sluggish capital markets, Salisbury said.
“Private credit is interesting to people because the returns available are attractive,” he said. “Investors like the idea of owning something a little more defensive but high yielding in the current economic environment.”
Goldman Sachs’ asset management arm closed a $15.2 billion fund earlier this month to make junior debt investments in private equity-backed businesses.
Private credit assets across the industry have more than doubled to over $1 trillion since 2015, according to data provider Preqin.
Investors are also showing interest in private equity funds and are looking to buy positions in the secondary market when existing investors sell their stakes, Salisbury said.
The U.S. investment-grade primary bond market kicked off 2023 with a flurry of new deals.
The market rally has “more legs” because investors are willing to buy bonds with longer maturities while seeking higher credit quality because of the uncertain economic environment, he said.
Goldman Sachs economists expect the Federal Reserve to raise interest rates by 25 basis points each in February, March and May, then holding steady for the rest of the year, Salisbury said.
More broadly, the “chilling effect” of last year’s rate hikes is starting to cool economic activity, Salisbury said, citing softer hiring activity and slowing growth in rents.
Reporting by Saeed Azhar; Editing by Megan Davies, Lananh Nguyen and Lisa Shumaker
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WASHINGTON, Jan 20 (Reuters) – U.S. existing home sales plunged to a 12-year low in December, but declining mortgage rates raised cautious optimism that the embattled housing market could be close to finding a floor.
The report from the National Association of Realtors on Friday also showed the median house price increasing at the slowest pace since early in the COVID-19 pandemic as sellers in some parts of the country resorted to offering discounts.
The Federal Reserve’s fastest interest rate-hiking cycle since the 1980s has pushed housing into recession.
“Existing home sales are somewhat lagging,” said Conrad DeQuadros, senior economic advisor at Brean Capital in New York. “The decline in mortgage rates could help undergird housing activity in the months ahead.”
Existing home sales, which are counted when a contract is closed, fell 1.5% to a seasonally adjusted annual rate of 4.02 million units last month, the lowest level since November 2010. That marked the 11th straight monthly decline in sales, the longest such stretch since 1999.
Sales dropped in the Northeast, South and Midwest. They were unchanged in the West. Economists polled by Reuters had forecast home sales falling to a rate of 3.96 million units. December’s data likely reflected contracts signed some two months earlier.
Home resales, which account for a big chunk of U.S. housing sales, tumbled 34.0% on a year-on-year basis in December. They fell 17.8% to 5.03 million units in 2022, the lowest annual total since 2014 and the sharpest annual decline since 2008.
The continued slump in sales, which meant less in broker commissions, was the latest indication that residential investment probably contracted in the fourth quarter, the seventh straight quarterly decline.
This would be the longest such streak since the collapse of the housing bubble triggered the Great Recession.
While a survey from the National Association of Home Builders this week showed confidence among single-family homebuilders improving in January, morale remained depressed.
Single-family homebuilding rebounded in December, but permits for future construction dropped to more than a 2-1/2- year low, and outside the pandemic plunge, they were the lowest since February 2016.
Stocks on Wall Street were trading higher. The dollar rose against a basket of currencies. U.S. Treasury prices fell.
MORTGAGE RATES RETREATING
The worst of the housing market rout is, however, probably behind. The 30-year fixed mortgage rate retreated to an average 6.15% this week, the lowest level since mid-September, according to data from mortgage finance agency Freddie Mac.
The rate was down from 6.33% in the prior week and has declined from an average of 7.08% early in the fourth quarter, which was the highest since 2002. It, however, remains well above the 3.56% average during the same period last year.
The median existing house price increased 2.3% from a year earlier to $366,900 in December, with NAR Chief Economist Lawrence Yun noting that “markets in roughly half of the country are likely to offer potential buyers discounted prices compared to last year.”
The smallest price gain since May 2020, together with the pullback in mortgage rates, could help to improve affordability down the road, though much would depend on supply. Applications for loans to buy a home have increased so far this year, a sign that there are eager buyers waiting in the wings.
House prices increased 10.2% in 2022, boosted by an acute shortage of homes for sale. Housing inventory totaled 970,000 units last year. While that was an increase from the 880,000 units in 2021, supply was the second lowest on record.
“Home price growth is likely to continue to decelerate and we look for it to turn negative in 2023,” said Nancy Vanden Houten, a U.S. economist at Oxford Economics in New York. “The limited supply of homes for sale will prevent a steep decline.”
In December, there were 970,000 previously owned homes on the market, down 13.4% from November but up 10.2% from a year ago. At December’s sales pace, it would take 2.9 months to exhaust the current inventory of existing homes, up from 1.7 months a year ago. That is considerably lower than the 9.6 months of supply at the start of the 2007-2009 recession.
Though tight inventory remains an obstacle for buyers, the absence of excess supply means the housing market is unlikely to experience the dramatic collapse witnessed during the Great Recession.
A four-to-seven-month supply is viewed as a healthy balance between supply and demand. Properties typically remained on the market for 26 days last month, up from 24 days in November.
Fifty-seven percent of homes sold in December were on the market for less than a month. First-time buyers accounted for 31% of sales, up from 30% a year ago. All-cash sales made up 28% of transactions compared to 23% a year ago. Distressed sales, foreclosures and short sales were only 1% of sales in December.
“While the stabilization of affordability will be good news for potential home buyers, a lack of available inventory could remain a constraint for home buying activity,” said Orphe Divounguy, a senior economist at Zillow.
Reporting by Lucia Mutikani;
Editing by Dan Burns and Andrea Ricci
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LONDON, Jan 18 (Reuters) – Empty offices globally should be converted to apartments to address a growing housing crisis in many countries, property executives told the World Economic Forum in Davos on Wednesday.
Commercial real estate values are sliding as an economic downturn reduces demand for space among cost-conscious companies, whose employees have been spending fewer days in the office since the COVID-19 pandemic.
But this could present an opportunity to address shortages of homes, property bosses said.
“Office buildings need to be converted to residential,” said Howard Lutnick, chairman and CEO of New York-based investment firm Cantor Fitzgerald, during a panel discussion. “They will become eyesores and they need to be fixed.”
Offices are emptier than official data suggests as most buildings are still generating income for landlords. However, as these rental contracts expire, cities like New York will have a significant number of obsolete buildings, said Christian Ulbrich, CEO of global property consultancy JLL Inc. (JLL.N).
“So we have to repurpose those buildings in some form or fashion or they will be empty and will be taken down.”
Millions of workers were forced to work from home during lockdowns aimed at stalling the spread of COVID-19 in 2020. Bosses are now struggling to persuade many of those staff to give up the perks of home-working, Ulbrich added.
“You have a middle layer of managers and leaders who enjoy their home in the suburbs and don’t want to have to commute, and that obviously creates the issue of younger folk also not coming back,” he said.
But cities that have lost their Monday-to-Friday buzz could be reinvigorated if public authorities are willing to provide financial support in the conversion of under-utilised offices to homes, since repurposing existing buildings can be very costly, the panellists said.
The cost of making developments sustainable was also proving challenging, the panellists added.
“Low income housing can’t be green, it’s got to be cheap,” Lutnick said. “That is a deep conflict everywhere in the world… It’s very difficult.”
Nathalie Palladitcheff, CEO of Canada-based real estate company Ivanhoé Cambridge, said she was optimistic more buildings could be converted sustainably with investment in technology and materials.
“The best building for the planet is the building that you don’t build,” she said.
Reporting by Iain Withers, Lawrence White and Lananh Nguyen, Editing by Sinead Cruise and Bernadette Baum
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