LONDON, Feb 9 (Reuters) – Britain’s housing market suffered the most widespread price falls since 2009 last month as the run of interest rate increases over the past year weighed on would-be buyers, according to a survey published on Thursday.
The Royal Institution of Chartered Surveyors (RICS) house price balance, which measures the gap between the percentage of surveyors seeing rises and falls in house prices, fell to -47, the lowest since April 2009, from -42 in December.
A measure of interest from buyers also fell to -47, its lowest since October last year.
Simon Rubinsohn, chief economist at RICS, said the overall mood of the market as measured by surveyors remained subdued.
“However, it is questionable how much downside to pricing there is likely to be given that recent macro forecasts from the Bank of England and others are now envisaging a less harsh economic environment this year,” Rubinsohn said.
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The BoE last week said Britain’s economy would probably fall into recession in early 2023 and would only come out of it in early 2024, a shorter period of contraction than in its previous set of forecasts.
The RICS report showed surveyors were less pessimistic about the outlook than in December with a measure of expected sales over the next 12 months improving to -20 from -42.
Other housing market measures have also recently shown a loss of momentum following the surge in demand seen during the coronavirus pandemic.
A Reuters poll of economists and analysts in November predicted house prices would fall around 5% this year having surged by 28% since the start of the pandemic in 2020.
RICS said the rental market continued to show strong interest from tenants with limited availability of stock.
Reporting by William Schomberg; editing by David Milliken
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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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WASHINGTON, Jan 31 (Reuters) – U.S. labor costs increased at their slowest pace in a year in the fourth quarter as wage growth slowed, giving the Federal Reserve a boost in its fight against inflation.
There was more encouraging news on inflation, with other data on Tuesday showing house price growth slowing considerably in November. The reports were published as Fed officials began a two-day policy meeting. The U.S. central bank is expected to raise its policy rate by 25 basis points on Wednesday, further scaling back the pace of its interest rate increases.
“The Fed’s rate hikes in 2022 were successful at cooling an overheated economy,” said Bill Adams, chief economist at Comerica Bank in Dallas. “But policymakers want to see a wider margin of slack open up to be confident that the slower inflation in late 2022 becomes the trend.”
The Employment Cost Index, the broadest measure of labor costs, rose 1.0% last quarter, the Labor Department said. That was the smallest advance since the fourth quarter of 2021 and followed a 1.2% gain in the July-September period.
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Economists polled by Reuters had forecast the ECI would rise 1.1%. Labor costs increased 5.1% on a year-on-year basis after climbing 5.0% in the third quarter. They remain higher than the 3.5% that Fed officials and economists view as consistent with tame inflation. The Fed has a 2% inflation target.
The ECI is viewed by policymakers as one of the better measures of labor market slack and a predictor of core inflation because it adjusts for composition and job-quality changes.
The Fed last year raised its policy rate by 425 basis points from a near-zero level to a 4.25%-4.50% range, the highest since late 2007. Though the central bank has shifted to smaller rate increases, it is unlikely to stop tightening monetary policy.
The Fed’s “Beige Book” report this month described the labor market as “persistently tight,” noting that “wage pressures remained elevated across districts” in early January, though five regional “Reserve Banks reported that these pressures had eased somewhat.”
While annual growth in average hourly earnings in the Labor Department’s monthly employment report has cooled, wages remain high. The Atlanta Fed’s wage tracker also moderated, but stayed elevated in the fourth quarter.
Labor market tightness was underscored by a separate Conference Board report showing its consumer survey’s so-called labor market differential, derived from data on respondents’ views on whether jobs are plentiful or hard to get, increased to 36.9 in January from 34.5 in December.
This measure correlates to the unemployment rate from the Labor Department, and the rise was consistent with tight labor market conditions. The government will on Wednesday publish job openings data for December. There were 10.5 million job openings on the last business day of November.
Stocks on Wall Street were trading higher. The dollar slipped against a basket of currencies. U.S. Treasury prices were mixed.
HOUSE PRICES COOLING
“Easing labor cost growth should not be conflated with benign labor cost growth,” said Sarah House, a senior economist at Wells Fargo in Charlotte, North Carolina. “The labor market remains incredibly tight. While the deceleration in labor costs is a welcome development, it is too soon to declare that it will stay there for the long haul.”
Wages and salaries increased 1.0% in the last quarter, also the smallest gain since the fourth quarter of 2021, after rising 1.3% in the third quarter. They were up 5.1% on a year-on-year basis after rising by the same margin in the prior quarter.
Private-sector wages rose 1.0%, slowing from a 1.2% advance in the third quarter. Private industry wages increased 5.1% on a year-on-year basis after rising 5.2% in the July-September quarter.
The moderation in wage growth was more pronounced in the leisure and hospitality sector, where wages and salaries gained 0.9% after increasing 1.8% in the third quarter. Employment in this industry remains below pre-pandemic levels.
But wages in the financial activities industry shot up as did those in wholesale trade. Construction wages rose solidly.
State and local government wages climbed 1.0% last quarter after surging 2.1% in the third quarter.
Higher inflation, however, continued to eat into consumers’ purchasing power. Inflation-adjusted wages for all workers fell 1.2% on a year-on-year basis in the fourth quarter.
Benefits rose 0.8% last quarter after increasing 1.0% in the third quarter. They were up 4.9% on a year-on-year basis.
The Fed’s rate-hiking cycle, the fastest since the 1980s, is dampening house price inflation. The S&P CoreLogic Case-Shiller national home price index, covering all nine U.S. census divisions, increased 9.2% on a year-on-year basis in November, pulling back from October’s 10.7% gain.
House prices measured by the Federal Housing Finance Agency rose 8.2% in the 12 months through November after climbing 9.8% in October. A persistent shortage of homes for sale is, however, likely to prevent a sharp decline in house prices.
“A dearth of inventory, no forced selling and the back-off in mortgage rates are helping to contain the fallout,” said Robert Kavcic, a senior economist at BMO Capital Markets in Toronto.
Despite consumers’ upbeat views of the labor market, they remained gripped by fears of a recession over the next six months, with many adopting a wait-and-see attitude toward big-ticket purchases. The Conference Board’s consumer confidence index fell to 107.1 this month from 109.0 in December.
Consumers’ 12-month inflation expectations rose to 6.8% from 6.6% last month.
“We project that a moderate recession will take hold by mid-year, although the downside for this downturn should be limited by solid financial fundamentals for most households and businesses,” said Ben Ayers, senior economist at Nationwide in Columbus, Ohio.
Reporting by Lucia Mutikani; Editing by Andrew Heavens, Paul Simao and Andrea Ricci
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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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Jan 27 (Reuters) – UK landlord Land Securities (LAND.L) said on Friday it sold One New Street Square office property in London to Hong Kong-based Chinachem Group for 349.5 million pounds ($432.12 million), in tune with its strategy to offload mature office spaces in the capital.
British landlords are grappling with a valuation slump of their properties, plagued by rising interest rates and broader economic uncertainty.
The 276,502 square-feet office space had a valuation of 362.8 million pounds in September 2022, Landsec said.
Landsec, after a strategic review undertaken in late 2020, had planned to sell about 2.5 billion pounds worth of mature London offices. With the latest sale, it is just 400 million pounds short of that target and will use the proceeds to repay debt.
London-headquartered Landsec, which has about 11 billion pounds worth of assets, with two-thirds of those properties in Central London, counts office spaces as its primary portfolio.
One New Street Square property, which Landsec bought in 2005 and, has 14 years of unexpired lease term remaining with Deloitte which has fully let the office space.
Landsec, one of the top UK landlords, had said in November the overall value of its properties dropped 2.9% as of Sept. 30 from the end of March, while the value of its key office portfolio dropped 4.4%.
($1 = 0.8088 pounds)
Reporting by Anchal Rana in Bengaluru; Editing by Arun Koyyur
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LONDON, Jan 26 (Reuters) – Britain’s commercial real estate sector is increasingly feeling the pinch of higher borrowing costs, as investor enquiries declined in the fourth quarter and the outlook for the year ahead worsened, an industry survey showed on Thursday.
The Royal Institution of Chartered Surveyors (RICS) said 83% of respondents to its quarterly commercial property survey thought the market was already in a downturn, up from 81% a quarter before. Almost half considered this downturn to be in its early stages.
RICS said investor enquiries fell across all sectors for the first time since the start of the pandemic, with a net balance of -30 of respondents citing lower investment demand.
Tarrant Parsons, senior economist at RICS, said the investment side of the commercial property market was “significantly affected” by the Bank of England’s (BoE) tighter monetary policy, and that higher borrowing costs were weighing on investor demand and hurting valuations.
The BoE’s Monetary Policy Committee raised its main rate at its last nine meetings and markets have priced in a half percentage point increase to 4% for Feb. 2.
British consumer price inflation was running at 10.5% in December, nearly five times the Bank’s 2% target.
Near-term capital value expectations dropped sharply across the board, and the industrial sector saw the weakest reading since 2011.
“Linked to the rise in government bond yields over the past six months, capital values have pulled back noticeably of late, while expectations point to this downward trend continuing over the near term,” Parsons said.
Looking at the year ahead, average capital values were forecast to fall further in all parts of Britain.
The survey of 940 companies was conducted between Dec. 7 and Jan. 13.
Reporting by Suban Abdulla; editing by David Milliken
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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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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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