The first hike, Omicron makes its mark and how to tame housing markets
Making sense of the latest trends in property and economics from around the globe.
3 minutes to read
Yesterday, Knight Frank research published its European Outlook, a high-level summary of our outlook for European real estate markets in 2022.
The first hike
The Bank of England's decision to hike the base rate to 0.25% will have little immediate impact on the residential property market. BoE governor Andrew Bailey has been signalling a rate rise since at least October and lenders have responded by raising mortgage rates. Yesterday's 0.15% move was largely priced in.
There will be a longer term impact however. The pattern of tight supply that is the largest contributor to the current pace of rising house prices will eventually ease and with the base rate likely to hit 1% by the end of 2022 housing market activity should subside to more seasonal norms in the months ahead. Read our quick take here.
Recent weeks have been a lesson in the perils of predicting the future. A rate hike in November looked nailed on and Bailey was chided for "walking the market up the hill" when the Monetary Policy Committee voted to hold. Markets had put the odds of a December hike at about 35% and were sent the wrong way again. During the confusion yesterday, the odds of another hike in February hit 50%.
Inflation
Central banks view inflation as a bigger threat than Omicron, that much is now clear. The driving force behind the BoE's decision was its forecast that inflation will hit 6% in April, a full percentage point higher than it forecast just a month ago and a level not seen since the early 1990s.
The Fed has been repositioning after spending recent months reiterating its view that inflation is transitory. On Wednesday it completed the pivot by suggesting as many as three interest rate hikes are coming in 2022.
The European Central Bank remains the most dovish of the three. Having hiked rates too early during the 2008 financial crisis and later during the eurozone debt crisis, it is winding back stimulus but may hold out on a rate hike until late 2022.
Omicron
The economic impact of Omicron is beginning to show in the data. December is on course to be the economy's worst month since February, according to an IHS Markit flash PMI.
The slowdown was centred on the service sector, which more than offset an acceleration in manufacturing. The chancellor will today hold talks with business leaders about a new support package for the hospitality sector, according to this morning's papers.
Consumer confidence has also taken a hit, falling back by one point to minus 15 according to a barometer published by GfK.
Cooling measures
Singapore yesterday became the latest state to introduce measures aimed at getting a grip on rising house prices.
The measures include raising the additional buyer's stamp duty (ABSD) from 12% to 17% for citizens buying their second residential property, and from 15% to 25% for those buying their third and subsequent properties. Other measures include tightening the total debt servicing ratio (TDSR) threshold from 60% to 55%. The threshold limits the amount that a person can spend on monthly debt repayments
Developers aren't happy. The Real Estate Developers’ Association of Singapore is calling for various exemptions and extensions to allow the new build market to "reach a sustained equilibrium", in the wake of the pandemic.
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