Midweek property news update - 31st March
Signs of a post-pandemic economy, UK house prices moderate and do investors believe the Fed?
4 minutes to read
Who believes the Fed?
A couple of weeks ago we covered the moment inflation replaced Covid-19 as the key concern for global investors, who began expressing those concerns by offloading government debt. Explosive growth and fiscal stimulus tends to fuel inflation, which makes government debt with fixed interest payments less attractive, so prices fall and conversely yields rise.
Well, yesterday the US 10-year Treasury yield hit its highest level since January. You can see why: earlier this week President Biden pledged that by mid-April, 90% of US adults would be eligible for a vaccine. Today, the president will lay out plans for a $2 trillion infrastructure package, fresh off the back of the signing of the historic $1.9 trillion stimulus bill. Consumer confidence is at its highest level since the onset of the pandemic and the dollar is hitting fresh highs.
With the economy likely to run hot for the foreseeable, it's clear investors are becoming sceptical of the Fed's commitment to hold interest rates close to zero until at least 2024. This debate is likely to seep into other western economies as recoveries take hold.
The new global economy
Much remains uncertain about the pandemic's lasting impact on living and working patterns, both of which are coming into sharper focus as vaccination rates climb and economies edge back to reopening.
Bloomberg covers a new report by global consultants McKinsey that suggests the decade-long stagnation in productivity could be at an end as the huge amount of capital flowing through the US economy prompts a new wave of funding for research, development and investment. The report sees “early evidence of dynamic changes” to the economy as businesses have been forced to take extraordinary measures to deal with the fallout from efforts to contain the pandemic.
They range from increased automation of warehouses and more online marketing to wider use of telemedicine and digitisation. All of this points to a new economy in which big business decisions are taken at a faster pace - more than half of North American and European company executives surveyed by McKinsey said their speed of making and implementing decisions was somewhat or significantly faster compared with December 2019.
The fate of cities, continued...
Despite travel bans, lockdowns and a global clamour for space and greenery, house prices across 150 global cities climbed 5.6% during 2020, up from 3.2% in 2019, according to new analysis by Kate Everett-Allen.
The performance of urban house prices is becoming increasingly polarised. The gap between the strongest and weakest-performing city is now 42 percentage points, up from 36 in June 2020.
Emerging markets are amongst some of the strongest performers, Turkish and Russian cities amongst them – albeit Turkish price growth is largely linked to high inflation and the lira’s trajectory.
A number of North American, Australasian and European cities are performing strongly whilst some Asian cities are trailing. It suggests some correlation with the length and stringency of lockdowns: markets that have experienced the strictest measures are seeing stronger pent up demand released, which is fuelling price inflation.
UK house price growth moderates
Annual UK house price growth slowed to 5.7% in March, from 6.9% in February, Nationwide said this morning. Prices fell 0.2% month-on-month.
The resilience of the UK economy, plus the extension of the furlough scheme, stamp duty holiday and the introduction of the mortgage guarantee scheme all mean activity is likely to remain buoyant over the course of the year. We do, however, expect further moderation in UK house prices to about 5% growth in 2021 - you can see our forecasts, updated earlier this month, here.
A couple of other UK economic data points worth noting that hold clues as to the trajectory of consumer spending over the coming months; firstly, older shoppers appear to be regaining confidence to go to supermarkets, and over-65s have increased trips to shops by 6.8% over the past four weeks. Secondly, british consumers reined in their borrowing at the fastest annual pace on record in February in a sign that swelling savings rates could prompt a consumer spending-led rebound over the coming months.
In other news...
Philippa Goldstein on the limbo in the hotel sector.
About half of people in UK now have antibodies against coronavirus, the new UK-EU financial services pact remains weak on market access, China's strong factory growth in March bolsters economic recovery, euro zone optimism beats expectations a with March surge, New York exodus makes Hamptons a year-round destination, China’s housing crash exposes a growing regional economic divide, and finally, After the Grenfell fire: who should pay the UK’s housing repair bill?
Photo by René DeAnda on Unsplash