The lingering housing supply crunch and underwhelming US jobs growth
Making sense of the latest trends in property and economics from around the globe.
3 minutes to read
Rates
It is relatively common for Bank of England rate setters to signal their intentions before they alter policy, which is why we're now seeing pretty regular hints that the Bank of England is preparing for a rate hike. We talked about chief economist Huw Pill's comments on Friday.
The latest comes from Monetary Policy Committee member Michael Saunders. Here is the key quote from his interview in this weekend's The Sunday Telegraph: “I'm not in favour of using code words or stating our intentions in advance of the meeting too precisely, the decisions get taken at the proper time. But markets have priced in over the last few months an earlier rise in Bank rate than previously and I think that's appropriate."
That pricing points to as many as three interest rate rises during 2022 and potentially one before the end of this year. Research consultancy Pantheon Macro expects the effective borrowing cost on all mortgages to be 0.8 percentage points higher at the end of next year than it currently is. Though these rises are likely to be small and measured, that would still mark the biggest increase in the effective rate since 2008.
Housing supply
The wind down of the stamp duty holiday and the reopening of the economy had the potential to usher in more normal housing market conditions following a frenetic few months characterised by ultra tight supply relative to demand.
Early signs suggest that the demand/ supply imbalance is likely to continue for the time being. Data from Tom Bill reveals there were 13 new buyers for every property listed in the UK in September. Over the last five years, the only time demand has exceeded supply to a greater extent was in January 2020 - the first month of the short-lived Boris bounce following the general election of December 2019.
The transaction pipeline indicates that robust sales volumes will continue to eat into that supply. The number of offers accepted in September was fractionally higher than the same month last year – two months into a stamp duty holiday - or about 88% above the five-year average.
The US economy
US employers added just 194,000 jobs in September, far below the anticipated 500,000 economists had been expecting.
The Delta variant has put the brakes on growth since the summer. Employers added a million jobs in July alone. Amid signs of slowing growth and inflation continuing to pick up, the minutes of the Federal Reserve's latest rate setters meeting, due for publication Wednesday, will make for interesting reading. Officials had signalled they would begin winding down stimulus before the end of the year but any further weakening of the jobs market will throw that into doubt.
Over the weekend, Goldman Sachs cut its US economic growth forecasts to 5.6% for 2021 versus their previous estimate of 5.7%, and 4% next year, down from 4.4% previously.
Evergrande
Late last night, Harbin became one of the first cities in China to step in and offer support to property developers since the onset of Evergrande's struggles.
Developers will get back presale funds held in government escrow accounts in an attempt to relieve pressure on cashflows and those with good credit profiles should also be allowed to re-embark on presale activities.
The degree of state support likely to be offered to developers has been a key question for several weeks and it is likely other cities follow suit - particularly those facing the most elevated levels of housing supply. Elsewhere, Bloomberg checks in on the developers asking to extend payment deadlines.
In other news...
In a new Rural Market Update, Andrew Shirley reveals why farmland values are rising at an annual rate of almost 4%.
Elsewhere - real estate group swoops for Hilton Hotels (FT), UK business and education seek relaxation of labour restrictions (FT), big banks resist most direct road map to net zero emissions (FT), and finally, new push to get civil servants back to the office (Times).