Rate hikes put the squeeze on US housing
Making sense of the latest trends in property and economics from around the globe.
3 minutes to read
The Fed
The US economy has now contracted for two consecutive quarters, meeting the most common definition of a recession.
Both the White House and the Fed are contesting whether what we're seeing is really a recession, mainly because the jobs market is so strong. Employers have added 2.7 million jobs so far this year and unemployment is locked at a five-decade low. Personal consumption also rose through the second quarter, adding another robust counterpoint.
Whether or not the Fed can continue to tighten policy without a much more pronounced downturn is among the most important questions facing the global economy and so far, so good, though of course it's very early days.
This week's hike puts interest rates to a range of 2.25%-2.5%. The Fed's Summary of Economic Projections suggests that could rise to around 3.4% this year before peaking at around 3.8% in 2023.
US housing
The pace of rising interest rates continues to be felt in the housing market. The 30-year fixed rate mortgage is now averaging 5.3%, according to the latest from Freddie Mac. That's dipped a little in recent weeks but is up from lows of 3.2% as recently as January.
New home sales fell 8.1% to a two year low during the year to June, according to official figures released earlier this week. Pending home sales, a better barometer of market activity, dropped 8.6% in the month to June, according to the National Association of Realtors.
The NAR's research suggests that buying a home in June was about 80% more expensive than in June 2019. Nearly a quarter of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today.
Still, this is going to take time to feed into house prices and the extent it does depends on a range of other factors. National house price growth eased to 19.7% on an annual basis in May, down from 20.6% the previous month, according to the S&P CoreLogic Case-Shiller Indices.
Power struggles
Developers in Hillingdon, Ealing and Hounslow face a potential ban on new housing projects until 2035 due to a shortage of capacity on the electricity grid, according to a report in the Financial Times.
Pressure on the grid has been particularly acute due to an uptick in the delivery of data centres, according to the piece. The ban would impact projects of more than 25 units and the Greater London Authority, SSEN and the National Grid are working on a solution, according to a note sent to developers.
Any ban would be significant for the capital's housing output. The London Plan sets these boroughs a combined target of 52,000 homes during the next decade, constituting about 10% of the total.
Unaffordability
Housing affordability in England is now the worst it has been since 1999.
The average home sold in the year ending March 2021 cost the equivalent of 8.7 times the average annual disposable household income, according to official figures published yesterday.
Buyers are most stretched in London, of course. It would take low income households 40 years to earn enough to buy an average home. Even the cheapest homes cost eight times the average household income.
In other news...
The latest data from Asia-Pacific, where house prices climbed 5.6% in H1 2022.
Elsewhere - China’s central bank seeks to mobilise $148bn bailout for real estate projects (FT), and finally, UK register of overseas owners of property to be implemented in August (STEP).