- With property prices in the city down 15-20% since their peak, Peter Churchouse of Portwood Capital said now may be a good time to buy a property in Hong Kong if you’re looking to own a home.
- But “Hong Kong is not the place” if investors are looking for good rental yield, he said, adding that Australia and New Zealand markets look attractive.
Hong Kong residential prices could fall by another 10% in 2024, according to DBS Hong Kong.
Bloomberg | Bloomberg | Getty Images
Hong Kong’s property market has plunged nearly 20% since its peak, and it may be a good time for homeowners to buy — but investors might want to think twice, according to Peter Churchouse, chairman and managing director of real estate investment firm Portwood Capital.
With property prices in the city down 15-20% since their peak, Churchouse said now may be a good time to buy a property in Hong Kong if you’re looking to own a home, but investors hunting for yield should look at Australia and New Zealand instead.
Investors and homeowners have different priorities, Churchouse pointed out.
For homeowners looking to buy, “prices down this much is probably not a bad time to look to be buying” if you can afford to pay mortgage and down payment, he said Tuesday on CNBC’s “Squawk Box Asia.”
“There’s still a bit of downside risks … but perhaps the worst is over.”
Home prices in Hong Kong dropped for four months straight. The official housing price index stood at 339.2 in August, down 7.9% from a year earlier and 4.2% lower from April peaks.
“Hong Kong is probably the easiest place in the region to buy, and I would think that Japan is probably a close second,” he said.
Buying elsewhere in the region is “fraught with all sorts of difficulties and legal issues … There are all sorts of banana skins,” Churchouse warned, explaining that home buyers in other countries either have to be a resident, permanent resident or an employee.
“Often, you can’t own property as an investor,” he added.
Jeff Yau, Hong Kong property analyst at DBS Hong Kong, said prices in Hong Kong are expected to continue plummeting and could fall by another 10% in 2024.
In October, the Hong Kong government cut stamp duties for property buyers to help boost the city’s slumping real estate market.
Among the relaxed levies, the stamp duty that non-permanent residents have to pay for property and another levy imposed on additional properties purchases by residents will each be halved to 7.5%.
Despite the positive news for homebuyers, demand may not bounce back in full force as the higher cost of financing will remain a hurdle for potential homeowners, said Henry Chin, Asia-Pacific’s head of research at CBRE.
For investors looking for high rental yield, “Hong Kong is not the place,” Churchouse said. “The yield today is less than the cost of capital, less than the interest rate you’re paying on your loan.”
Rental yield in Hong Kong is currently below 3%, while the effective mortgage rate exceeds 4.1%, implying a “negative rental carry,” DBS Bank’s Yau said.
“If the investors have their first property, they still need to pay New Residential Stamp Duty of 7.5% if they buy a second property,” Yau said. “It is not a good time to buy property for investment.”
Where can investors find good rental yield?
“The best yield in markets in this region, I tend to think, are Australia and New Zealand,” Churchouse said. Yield for residential property or commercial property there may be as high as between 6-8% — “maybe even higher,” he added.
In Japan as well, it’s common to find rental yields of about 5% or 6%, he added.
In a country where interest rates are “very, very low,” he said, “You can get a rental yield that higher than your interest costs in Japan.”
— CNBC’s Clement Tan contributed to this report.
2 Hours Ago
UK house prices rise unexpectedly in November
Residential properties in the Maida Vale district of London on June 30, 2022.
Bloomberg | Bloomberg | Getty Images
U.K. house prices rose 0.2% in November, according to data from lender Nationwide that was published Friday. Economists polled by Reuters had forecast a 0.4% decline.
House prices were still 2% lower than a year ago.
“There has been a significant change in market expectations for the future path of [the Bank of England’s] Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity,” said Nationwide’s chief economist, Robert Gardner.
In mid-August, investors expected a peak rate of 6% followed by a decline to around 4% over the next five years, but markets now suggest rates have already peaked at 5.25% and will be lowered to around 3.5% in the coming years, he said. That has sent down longer-term swap rates that underpin mortgage pricing.
“If sustained, this will help to ease the affordability pressures that have been stifling housing market activity in recent quarters, where the number of mortgage approvals for house purchases has been running at c.30% below pre-pandemic levels,” Gardner said.
— Jenni Reid
5 Hours Ago
European stocks head for higher open
European stocks are heading for a strong start Friday, extending November’s positive momentum into the new month.
The U.K.’s FTSE 100 looks set to open 42 points higher at 7,487, according to IG data. Germany’s DAX is seen opening 60 points higher at 16,293, with France’s CAC 40 up by 25 points at 7,338 and Italy’s MIB up 125 points at 29,891.
— Jenni Reid
10 Hours Ago
China’s manufacturing activity unexpectedly expands in November: Caixin survey
Workers assemble mini excavators in a factory of heavy machinery in Suzhou in east China’s Jiangsu province on Oct. 23, 2023.
Future Publishing | Future Publishing | Getty Images
China’s manufacturing sector unexpectedly expanded in November, according to a survey by Caixin.
The Caixin purchasing managers’ index climbed to 50.7 last month from 49.5 in October, as a rise in new orders helped lift factory production.
The November PMI recorded the fastest expansion in three months and beat Reuters poll estimates of 49.8.
“Though modest, the rate of new order growth was the best seen since June, with firms often noting that firmer market conditions had helped to lift sales. However, new work from overseas continued to fall slightly, underscoring a relatively challenging external demand environment,” the survey said.
A reading above the 50-point mark signifies growth.
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Europe stocks open higher
Stocks had a bright start to the new month, with the Stoxx 600 index 0.5% higher at 9 a.m. U.K. time and all sectors trading in the green.
London’s FTSE 100 index rose 0.8%, while France’s CAC 40 and Germany’s DAX were up by 0.45% and 0.7%, respectively.
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Stoxx 600 index.
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The bank named three Chinese stocks it says are “well positioned” for those themes.
One of the stocks is on Goldman’s conviction list, which comprises buy-rated names it expects to outperform.
CNBC Pro subscribers can read more here.
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Market pricing points to five rate cuts following inflation data
As markets got another signal Thursday that inflation is ebbing, they solidified bets that the Fed is done hiking rates and will be cutting substantially in 2024.
Futures pricing suggested only a minimal chance of rate increases at the Federal Open Market Committee’s December and January meetings, according to CME Group data. Moreover, futures pointed to a better-than-even chance that the central bank will cut benchmark rates five times next year, the equivalent of 1.25 percentage points.
The moves followed Thursday morning economic readings showing that core PCE inflation fell to 3.5% and continuing jobless claims rose to a two-year high.
—Jeff Cox
House prices rose in November compared to October but are still cheaper than this time last year, according to a new report.
UK house prices rose by 0.2% month-over-month in November 2023, defying negative forecasts but also slowing from a 0.9% gain in October, according to the latest figures of mortgage lender Nationwide Building Society.
The Nationwide House Price Index was down 2% in a yearly comparison, though, it is still triggering hopes of a revival of the recently staggering real estate market in the UK, as it shows a sizeable slowdown from the annual drop of 3.3% in the previous month.
The average cost of a home was £258,557 (€300,492) in November.
As the latest monthly figure marks a rise for a third month in a row, there are rising expectations that the UK housing market is about to open a new chapter.
Britain’s housing market has been hit by high borrowing costs as the Bank of England pushed key rates to a record level of 5.25% in order to battle inflation. Recent data about consumer prices triggered a shift in what the market expects from the central bank.
“There has been a significant change in market expectations for the future path of Bank Rate in recent months which, if sustained, could provide much needed support for housing market activity,” Robert Gardner, chief economist at Nationwide, said in his report.
The cautiously increasing prices could reflect a rising confidence that market conditions are easing in the following months, as interest rate expectations decline.
A decrease in the longer-term interest rates that underpin fixed rate mortgage pricing, paired with solid income growth and weak or negative house price growth, “should help underpin a modest rise in activity in the quarters ahead,” Gardner also noted.
“Nevertheless, a rapid rebound still appears unlikely,” adds the report, as consumer confidence is still weak and there are looming risks that inflation might take an upturn and the Bank of England has to step up again.
By Stephen Johnson, Economics Reporter For Daily Mail Australia
03:51 01 Dec 2023, updated 03:54 01 Dec 2023
Prime Minister Anthony Albanese owns two houses in inner-city suburbs that have enjoyed Sydney‘s strongest property price growth during a housing crisis.
Marrickville, in the city’s gentrified inner-west, saw its median house price in the year to November surge by 14.6 per cent to an even more unaffordable $2,022,621, new CoreLogic data showed.
Mr Albanese owns a house in this suburb and lived there until moving to The Lodge in Canberra in full time after winning the May 2022 election.
His pecuniary interest register shows he owns three properties, including the Marrickville house along with an investment house at neighbouring Dulwich Hill, which is rented out, and a Canberra unit.
In Dulwich Hill, house prices during the past year have surged by 19.7 per cent to $2,159,368, which means the prime minister would benefit from capital growth as an investor landlord.
A CoreLogic analysis showed Marrickville, Sydenham and Petersham, in Mr Albanese’s Grayndler electorate, had Sydney’s strongest annual price growth of 14.4 per cent in November, taking mid-point values for houses and units together to $1,694,355.
Sydney’s inner-west was once a working class area but now median house prices are typically well above the $2million mark, which is significantly more expensive than greater Sydney’s mid-point house price of $1,397,366.
Mr Albanese grew up locally in a housing commission flat at Camperdown and was raised by his single mother on the invalid pension, Maryanne.
Across Sydney, Australia’s most expensive capital city market, house prices have surged by 11.5 per cent during the past year and by 12.5 per cent since bottoming out in January 2023.
This has also coincided with Sydney’s rental vacancy rate sinking to an ultra-low 1.2 per cent as 429,580 overseas migrants, on a net basis, moved to Australia in the year to September.
AMP chief economist Shane Oliver said the strongest population growth since the early 1950s meant house prices kept rising in 2023 despite the aggressive rate hikes.
‘The supply shortfall in the face of strong immigration has had the upper had this year and should prevent sharp falls in prices, but high interest rates and their lagged impact are now starting to reassert themselves,’ he said.
House prices in November rose in Sydney, Brisbane, Adelaide, Perth and Canberra even though the Reserve Bank last month raised interest rates for the 13th time in 18 months, taking the cash rate to a 12-year high of 4.35 per cent.
But in Melbourne, prices were flat at $943,725 in a city where annual house price growth at 3.3 per cent has been much weaker than other big state capitals.
Perth, Australia’s most affordable capital city market that benefits more from interstate than overseas migration, had the strongest monthly growth of two per cent, as prices over the year rose by 13.8 per cent to $676,910.
But at Aramadale in the city’s south-east, prices rose at an annual pace of 21.5 per cent to $551,197.
Outside of Perth and the coastal satellite city of Mandurah, Sydney suburbs had Australia’s strongest property price growth.
The Warringah area, covering Dee Why north of Manly on Sydney’s northern beaches, had an annual increase of 14.3 per cent, taking the median house and unit price to $2,067,881.
At Baulkham Hills, in Sydney’s north-west, home prices rose by 14.1 per cent to $2,021,885.
Less upmarket areas went up too with Blacktown prices in the city’s west rising by 13.7 per cent to $970,316.
CoreLogic research director Tim Lawless said home price growth in wealthier suburbs was likely to slow as rate rises constrained what banks could lend.
‘The more expensive end of the market tends to lead the cycles in these cities,’ he said.
‘As borrowing capacity reduces, we may be seeing more demand deflected towards lower housing price points, with the broad middle of the market now recording the strongest rate of growth in Sydney and Melbourne.’
Labor lost the 2019 election under former leader Bill Shorten, who had campaigned to end negative gearing landlord tax breaks for future purchases of investment properties, and halve the capital gains tax discount for investors to 25 per cent from 50 per cent.
Mr Albanese dumped those policies after taking over as Labor leader, following a strong swing against Labor in outer suburban and regional areas but not wealthy, inner-city areas.
Daily Mail Australia has contacted the Prime Minister’s Office for a comment.
- Savills estimates rents will continue to outstrip wage growth for years to come
Rents are set to squeeze Brits’ pockets even more in the next five years, according to new forecasts that predict the rise in costs will continue to outpace wage growth.
Research by estate agents Savills estimates that average rents across the country will have risen by 9.5 per cent by the end of 2023 – and will rise by an average of more than three per cent a year every year after that up to 2028.
The agency predicts the average monthly rent will have risen 18.1 per cent by the end of 2024 – with higher than average increases in London and the south.
Up to the end of September, rents have risen by more than a quarter to 26 per cent since March 2020, when the first Covid lockdown began – and rises will only taper off when prices hit an ‘affordability ceiling’.
At that point, landlords will be hard-pressed to hike prices further – and rises could be outpaced by wage growth by 2027, bringing about a long-awaited reprieve for those who do not own their own home.
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Savills predicts that landlords will continue to sell up as high interest rates wreak havoc on their mortgages – and that there could be a serious deficit in the number of properties available for the next few years.
Demand for rental properties has also outstripped supply – with the high interest rates keeping otherwise ready-to-buy renters from taking out mortgages.
Emily Williams, director in the Savills residential research team, said: ‘Homes to rent continue to be in significant short supply. The end of a series of national lockdowns sparked increased rental demand in mid-2021 that has consistently outstripped supply ever since.
‘At the same time, the rising cost of debt has impacted the profitability of many mortgaged landlords. This, together with a changed tax and policy environment, is forcing an increasing number to sell their properties.
‘It’s very difficult to see where an increase in rental supply will come from in the next couple of years.
‘Any significant increase in stock in the sector will be delayed until 2026 and beyond, when interest rates have fallen more substantially.’
Households are spending more than a third – 35.3 per cent – of their income on rent, the agency believes, the highest level in 18 years.
In London, the figure is even higher – with households spending 42.5 per cent of their income on were they live. Rents in the capital have soared 31 per cent in the last two years alone.
It now expects built-to-let projects to lead the way in creating a new supply of private rental properties.
The Homelet Rental Index reports that the average UK rent now sits at £1,283 a month – up 9.56 per cent year-on-year.
Estate agents Zoopla, meanwhile, said in its most recent rental market report in September that the average renter has seen costs rise by £2,800 in the last three years.
The problem is exacerbated in Scotland, where landlords are using a loophole in the Scottish Government’s rent control scheme to hike rents by an average of 12.7 per cent when they bring new tenants on board.
The scheme protects existing tenancies from having their leases raised by more than three per cent upon renewal.
- There are two regions where detached home is cheaper in the sticks than in town
- But in most areas, a country home will set buyers back much more
- We look at price difference between rural and urban properties across England
Buying a house in the country is a dream for many homeowners, attracted by the idea of a peaceful rural idyll where they can get away from it all.
But the cost of doing so can be prohibitive. Prices were driven up during the pandemic when outdoor space rocketed to the top of many buyers’ wish list and led to a flight away from major towns and cities.
For those who are still seeking their perfect country pile, exclusive research from estate agent Jackson Stops has revealed the areas of England where rural homes still offer a bargain compared to those in urban centres.
Topping the list is the East of England, including Cambridgeshire, Bedfordshire, Norfolk, Suffolk and Essex.
There, a detached home in the country costs an average of £487,483, which is 37 per cent cheaper than the £772,396 they would typically pay for a similar property in a larger town or city.
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The price difference has increased from 34 per cent before the pandemic, and has been driven by a spike in house values in sought-after cosmopolitan areas such as Cambridge.
Demand from detached home buyers looking for rural locations in the East of England has also fallen by 2 percentage points in the last decade, now at 54 per cent today compared to 56 per cent in 2013 – meaning it could be easier to drive a bargain.
The rural location in the East of England that proved the most popular with buyers in 2023 was Whittlesey, according to Jackson Stops.
Six miles east of Peterborough in the Fenland district of Cambridgeshire, Whittlesey has a population of close to 18,000 and has two historic churches as well as access to several local nature reserves.
It is also famous for hosting an annual ‘straw bear festival’ each January.
Also popular was Dersingham in Norfolk. The village lies just to the north of the Sandringham, the favoured royal residence of Queen Elizabeth II.
It is also close to the Dersingham Bog National Nature Reserve which is home to several rare plants and birds.
Nick Leeming, chairman of Jackson-Stops, says, ‘The East of England has grown in popularity over the last two years, home to the Cambridge-Oxford Arc as a melting pot for innovation and urban expansion.
‘Whilst rural hubs around Suffolk and Norfolk have increased in demand thanks to the rise in flexible working and lifestyle trends, there remains plenty of opportunities here for buyers looking for the best of both worlds.’
Daryl Parr, director of Jackson-Stops Colchester, adds: ‘Essex continues to be one of the most affordable home counties for those moving out of London. This means families can get a large, detached house in a green location, within an hour of the capital.
‘There are houses that will tick all the boxes and sell quickly – these are set in the real diamonds of villages, in the heart of Constable country, usually right behind an old church.
‘Hidden gem villages in the golden triangle between Ipswich, Chelmsford and Colchester are becoming more popular with buyers, where picture-postcard country views are a plenty.’
It is one of four areas where the price of a detached home in the countryside is cheaper than that of an urban one, along with the West Midlands, the North West and Yorkshire and the Humber.
The area where owners pay the biggest premium for a rural detached home is the South West, where it costs an average of £563,786 – 11 per cent higher than an urban detached property at £508,006. The gap has increased from 8 per cent in 2022.
There, the most popular locations with country home buyers included Bishops Cleeve, Amesbury and Bovey Tracey.
Bishop’s Cleeve in Gloucestershire has a population of around 14,000 and is located at the foot of Cleeve Hill, the highest point of the Cotswolds.
It is home to The Grange, a business complex which contains offices for large firms including Zurich and Capita.
Amesbury in Wiltshire is possibly the oldest occupied settlement in Britain, having been first settled around 8820 BC. It is also home to Stonehenge.
Meanwhile, Devon’s Bovey Tracey is a market town on the edge of the Dartmoor national park.
Rural homes usually outprice urban ones
Looking at house prices in real terms, the price of a rural home – across all property types, not just detached, has risen faster than an urban one.
Jackson Stops’ research shows that buyers consistently pay more for rural homes – and the price premium has expanded in the last decade.
In 2013, a buyer would need to buy on average 15 per cent more for a rural home compared to an urban home in the same region, whilst in 2023 this premium had jumped to 18 per cent.
The typical rural home now costs £347,278 compared to £295,526.
Jackson-Stops say this indicates rising demand for country life across the decade.
The cheapest region in which to buy a rural home is the North East, where it costs an average of £182,014, while the most expensive was the South East at £500,271.
The South West has seen the biggest spike in rural house prices, increasing 28 per cent in the last five years to £383,767.
That has been driven by the huge popularity of Cornwall, which topped Jackson Stops’ list of the most popular locations for rural home seekers for the third time in three years.
In each of those years it was followed by Wiltshire and the East Riding of Yorkshire.
Richard Holder, director at Jackson-Stops Cornwall, said: ‘The West Country has a long legacy of drawing in all types of home buyers from across the country, lured in by rolling landscapes and blissful beaches.
‘But Cornwall in particular is the kind of place that puts a spell on you – the romanticism of Poldark is more than just on-screen. It’s laid-back nature, warm sense of community, and close affiliation with nature, make Cornwall the ultimate countryside lovers retreat.
‘Name any hamlet here and no doubt you’ll find a cobbled street lined with pretty cottages, surrounded by wildlife and heritage. It’s a magnet for downsizers and entrepreneurs, offering the good life in spades.’
The research excluded London as it does not have any rural homes.
Prices are also falling faster in towns and cities than in the countryside. In the last year, England’s rural house prices dropped in value by on average 1 per cent or £3,615, however, urban homes decreased by nearly twice this amount by 2 per cent or £6,705.
However, rural homes have not been immune to price falls and most areas have still seen a reduction.
The South West was the only area where prices increased in the last year, going up by 2 per cent. They also stayed the same in the South East.
The area that saw the biggest drop was Yorkshire and the Humber, where prices have dropped 7 per cent in a year to £253,899 according to Jackson Stops.
However, rural house prices are still 15 per cent higher than urban ones.
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A person walks past multiple for-sale and sold real estate signs in Mississauga, Ont., on May 24.Nathan Denette/The Canadian Press
John Rapley is a political economist at the University of Cambridge and the managing director of Seaford Macro.
When the Bank of Canada decided last month to hold off on further interest-rate rises, many breathed a sigh of relief. In Canada, as indeed in all G7 economies just now, expectations are growing that the worst of the inflation surge has passed.
Some have gone so far as to declare victory in the inflation debate for ”team transitory,” saying inflation was only ever going to be temporary. In fact, to judge from action in bond markets, investors are now betting that rate cuts will start as early as next year. Cue the blog posts that the Roaring Twenties are now back on track.
But the celebrations may be premature. Buried in the notes of last month’s BoC meeting was concern about the impact of Canada’s housing crisis on inflation. While the big increases in mortgage rates should have knocked prices down by now, the bank noted that “the ongoing structural shortage of housing supply in the economy was sustaining elevated house prices.” Owing to this, even though a majority of governors voted to hold rates constant, some favoured a further hike.
Because until Canada brings real estate prices down further, not only will the housing crisis endure, but the economy will probably continue to struggle with a stagflation problem, with prices rising in a weak economy.
The BoC is not the only central bank warning it’s too early to declare victory in the war on inflation. U.S. Federal Reserve governors have been making similar noises, while earlier this week, amid rallying bond markets, Bank of England Governor Andrew Bailey warned that it was “far too early to be thinking about rate cuts.” And scarcely anyone would say that housing prices in Canada are anything healthy for the wider economy.
It’s a bit puzzling that the macroeconomic effects of real estate prices have received so little attention until now. It stands to reason that if the prices of real estate rise, businesses will face pressure to raise costs to cover high rents, and workers will seek higher pay to be able to cover their increased living costs. Indeed, evidence from the U.S. suggests that over time, when the value of real estate has risen relative to other assets, inflation tends to follow. Equally, growth then slows, resulting in the sort of stagflation we have seen of late.
What lessons might Canada infer from the American experience of how to break free from this trap? Since the 2008 financial crisis, the Canadian and U.S. economies have gone onto different paths. Whereas Canada’s per capita GDP had previously tracked its southern neighbour, since 2008 it’s been falling behind.
It may just be that real estate explains the divergence. One significant impact of the 2008 crash was that the value of real estate relative to other assets stopped rising south of the border. Not so in Canada, where real estate took off. Even though many Canadians might not want to hear it, the key lesson from the U.S. may be that if you want to restore economic growth, you need to puncture the housing bubble – and puncture it big time.
Canadian house prices have now stopped rising and begun falling from their peak. But south of their border, real estate prices fell a fifth from their 2007 peak, and in real terms didn’t recover for more than a decade. Canada probably has a way to go yet, and the faith that real estate prices should resume rising soon is probably misplaced.
Moreover, there’s only so much the Bank of Canada can do about this, given the structural conditions underpinning real estate prices. The bank can choke off demand by raising mortgage costs. But it can’t do much to boost supply, which means prices could bounce back quickly if it lowers rates – as happened earlier this year when it paused its rate rises and real estate markets turned briefly upward again.
One of the unusual features of the real estate market is that it tolerates a much higher degree of anti-competitive behaviour than is allowed in other markets. Frequent though the complaints may be that Canada tolerates oligopolies in sectors such as banking, food retail or telecommunications, if a company tries to drive potential rivals out of business with predatory pricing or buyouts and shutdowns, it will likely feel some heat from regulators.
Not so for real estate owners. They can attend a planning meeting to block a new development that will knock down the value of their asset. When combined with zoning restrictions that limit new house supply, it’s understandable the federal Housing Minister would lament that house building is illegal.
Taking all this into consideration, it seems clear that investors looking for a break from high interest costs and the return of rising prices should probably brace themselves for more trouble.
By David Wilcock, Deputy Political Editor For Mailonline
17:15 22 Nov 2023, updated 17:15 22 Nov 2023
Average house prices will fall by almost £25,000 next year and they are unlikely to recover to their 2022 high until 2027, experts warned today.
The Office for Budget Responsibility (OBR) also said that prices would fall by 4.7 per cent next year, after a modest increase of 0.9 per cent this year.
It said recovery could take three more years, but by the time they do the average mortgage rate could well be 5 per cent, heaping added pain on buyers.
The analysis came in its response to Chancellor Jeremy Hunt‘s Autumn Statement today in which he sought to light a fire under the UK economy with tax cuts for workers and businesses.
In the second quarter of 2023, housing transactions fell to their lowest level since the middle of the pandemic, as higher mortgage rates reduced housing affordability,’ it noted.
Leading indicators suggest the market will remain weak … (and) residential property transactions are expected to fall as the housing market continues to cool.
‘We expect housing transactions to fall by 6.9 per cent in 2024, a 1.9 percentage point steeper decline than in our March forecast of 5 per cent.
‘We then expect housing transactions to steadily return to growth from the final quarter of 2024, returning to pre-pandemic levels in the first quarter of 2027.
‘Our central forecast estimates that house prices will grow by 0.9 per cent in 2023 and then fall by 4.7 per cent in 2024.
‘This would be consistent with the price of the average UK home reaching a low of around £266,000 at its trough in the final quarter of 2024.
‘All in all, from their high in the fourth quarter of 2022 to their low in the final quarter of 2024, nominal house prices are expected to decline by 7.6 per cent (2.4 percentage points less than we expected in March).
‘We then expect house prices to recover slowly, reaching their late 2022 peak levels in the second half of 2027 and rising to 6.4 per cent above this level by the end of the forecast. The outlook for house prices is particularly sensitive to changes in interest rates and household income growth.’
The OBR’s forecasts painted a mixed picture about the health of the economy.
The budget watchdog’s forecast in March was for the economy to shrink by 0.2 per cent in 2023, but that has now been revised up to growth of 0.6 per cent.
But it downgraded forecasts for the following three years, with GDP now expected to grow by 0.7 per cent next year, with 1.4 per cent in 2025 and 1.9 per cent in 2026.
The OBR also said inflation was ‘expected to be more persistent and domestically fuelled than we previously thought’ and is not expected to return to the Bank of England’s 2 per cent target until the first half of 2025, more than a year later than in March.
It is high inflation – fuelling increased earnings and prices and subsequently larger tax takes – which contributed to the £27 billion windfall which Mr Hunt has used in part for the giveaways announced in his statement.
- Chancellor Jeremy Hunt published his Autumn Statement 2023 on Wednesday
- OBR figures show a sharp downgrade for economic growth in 2024 and 2025
- UK house prices expected to fall by 4.7% in 2024, the OBR said
The headline-grabbing announcements made in the Chancellor’s Autumn Statement overshadowed fresh data on the outlook for the UK economy.
The Office for Budget Responsibility (OBR) has published its latest forecasts for the UK economy, inflation, house prices and unemployment.
This is Money outlines the key data and charts from the OBR’s latest forecasts.
Economic forecasts
The OBR figures show a sharp downgrade for economic growth in 2024 and 2025 from previous forecasts.
However, both growth this year and forecasts for the overall size of the economy are set to be better than previously expected.
The UK economy is set to grow by 0.6 per cent in 2023, according to the OBR, which expects growth of 0.7 per cent next year, against 1.8 per cent forecast in March.
The OBR said: ‘We expect growth to remain subdued at 0.7 per cent in 2024 as a result of weak real wage growth, the effect of past increases in interest rates and fading fiscal support weighing on economic activity.’
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For 2025, GDP is forecast to rise by 1.4 per cent, against previous forecasts of a 2.5 per cent increase.
The OBR expects GDP growth to hit 2 per cent in 2027, before slipping to 1.7 per cent the following year.
In March, the OBR said it expected the UK economy to shrink by 0.2 per cent this year, adding the UK would avoid falling into recession.
Inflation
Headline inflation is now forecast to fall to 2.8 per cent by the end of 2024, before slipping to the 2 per cent target in 2025.
The 2 per cent target will be reached a year later than the OBR forecast in March.
The OBR expects inflation to be at around 4.8 per cent by the end of this year, 1.9 percentage points above its March forecast.
Higher nominal earnings growth outweighing the effect of lower energy prices drove the upward revision for the end of 2023, the OBR said.
It added: ‘Inflation has fallen from its 41-year high of 11.1 per cent in October 2022, but not as sharply as we expected in our March forecast.’
The latest figure for consumer price inflation is 4.6 per cent for October, down from a peak of over 11 per cent in October 2022.
The OBR said: ‘Risks around the outlook for inflation remain high, given both domestic and international uncertainty.’
Interest rates
The OBR noted that markets now expect interest rates will need to remain higher for longer to bring inflation under control.
The Bank of England’s Monetary Policy Committee voted to keep UK interest rates on hold at 5.25 per cent earlier this month.
The OBR said: ‘Markets now expect Bank Rate to settle at 4 per cent by the end of the forecast [in 2029], rather than fall to 3 per cent as we assumed in March.’
House prices and mortgages
The OBR expects house prices to grow by 0.9 per cent in 2023 and then fall by 4.7 per cent in 2024.
It said: ‘This would be consistent with the price of the average UK home reaching a low of around £266,000 at its trough in the final quarter of 2024.’
From their high in the fourth quarter of 2022 to their low in the final quarter of 2024, nominal house prices are expected to fall by 7.6 per cent, the OBR said. This is 2.4 percentage points less than forecast in March.
It added: ‘We then expect house prices to recover slowly, reaching their late 2022 peak levels in the second half of 2027 and rising to 6.4 per cent above this level by the end of the forecast.
‘The outlook for house prices is particularly sensitive to changes in interest rates and household income growth.’
The Bank of England’s November Monetary Policy Report noted that higher mortgage rates are likely to take longer to pass through to the stock of mortgages than in the past, mainly because more people are on fixed rate deals.
Unemployment
The OBR expects UK unemployment to peak at 4.6 per cent in the second quarter of 2025, amid weaker forecast GDP growth and ‘spare capacity’ opening up in the labour market.
The OBR said: ‘Labour demand has been weakening recently, with vacancies falling from a peak of 1.3 million in May 2022, to around 960,000 in October 2023.
‘The employment rate is forecast to fall from 60.7 per cent in the third quarter of 2023 to 60.2 per cent in the second quarter of 2025, reflecting both rising unemployment and falling participation.
‘The employment rate then makes a partial recovery to 60.6 per cent by the end of the forecast, 0.3 percentage points higher than we expected in our March forecast.’
Average earnings
The OBR’s latest forecast for average earnings growth is about 2 percentage points higher for this year and next year than predicted in March.
It expects average earnings growth of 6.8 per cent by the end of 2023, which is 1.9 percentage points higher than its March forecast.
The OBR added: ‘We expect earnings growth to ease back to 3.7 per cent in 2024 and 2.2 per cent in 2025 as inflation falls further, labour market conditions continue to loosen and unemployment rises.’
Earnings growth is expected to be around 2.8 per cent in 2028.
Household income
Real household disposable income (RHDI) is forecast to rise by 0.6 per cent in 2023.
The OBR said this was ‘partly because rising interest rates support household incomes (on aggregate) due to the boost to savings income from higher deposit rates so far outweighing the rise in interest payments from higher mortgage rates’.
However, RHDI is expected to fall again in 2024, by 0.9 per cent, as inflation looks set to outweigh growth in pay and non-labour income, it said.
The OBR added: ‘The reduction in the growth contribution of non-labour income is because higher interest receipts are more than offset by a rise in debt interest payments, as more fixed-rate mortgages face renewal and banks recover their retail margins over deposit rates.
‘RHDI gradually returns to growth of around 2 per cent in the medium term, as inflation drops back to around the 2 per cent target, pay growth reaches above-inflation rates and interest rate rises have fully passed through.’
Tax receipts
The tax-to-GDP ratio in 2028-29 is set to be 4.5 percentage points higher than it was in 2019-20.
The OBR said: ‘The tax system inherited by Chancellor Sunak in March 2020 would have increased the tax-to-GDP ratio by 0.2 percentage points, due largely to fiscal drag.
‘Underlying forecast changes since then raise the ratio by 2.5 percentage points over the nine-year period, largely reflecting a more tax-rich composition of economic activity.’
The OBR added that measures announced in today’s Autumn Statement decrease the tax burden by 0.6 percentage points in 2028-29.
It said: ‘Relative to our March forecast, and including the impact of Autumn Statement measures, receipts are up by £40.8billion (3.9 per cent) in 2023-24, and then up by an average of £50.7billion a year (4.4 per cent) between 2024-25 and 2027-28.’
Borrowing
Borrowing is forecast to fall steadily from 5 per cent of GDP this year to 1.1 per cent of GDP by 2028-29, which would be its lowest level since 2001-02.
The OBR said: ‘This is little changed from our forecast in March as the reduction in the pre-measures forecast is almost entirely offset by the cost of the Autumn Statement measures.
‘Most of the 3.5 per cent of GDP decline in borrowing over the forecast period comes from the increase in income tax and NICs receipts driven by higher earnings and fixed tax thresholds (-1.0 per cent of GDP), the reduction in departmental expenditure as a share of GDP (-1.1 per cent of GDP), and debt interest costs falling back from their peak (-0.5 per cent of GDP).’
In cash terms, borrowing is forecast to fall from £128.3billion in 2022-23, to £123.9billion this year and to £35billion by 2028-29.
Debt
Headline debt is now expected to be 94 per cent of GDP by the end of the five year forecast period.
According to the OBR, underlying debt will be 91.6 per cent of GDP next year, 92.7 per cent in 2024-25, 93.2 per cent in 2026-27, before falling in the final two years of the forecast to 92.8 per cent in 2028-29.
On this basis, the Government will meet is fiscal target of having the debt falling in five years’ time.
The OBR said: ‘The path of underlying debt is little changed as a share of GDP from our March forecast after taking account of historical revisions to the level of nominal GDP.’
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