Residential construction contracts at the fastest rate since 2009
Making sense of the latest trends in property and economics from around the globe.
4 minutes to read
Residential property values have proved more resilient than expected.
Prime buyers appear particularly confident that the worst of the downturn is behind us. Their appetite to purchase is being stifled by low supply, due in part to a reluctance among mortgaged households to move. Disruption to the supply of new homes is also weighing on stock levels, caused by high construction costs, persistent labour shortages, and planning delays.
We have raised our prime global house price forecasts to account for these factors. We think values will climb 2.5% in 2024, up from our mid-2023 assessment of 2.1%. We think values will close this year up 2.4%, up from our 1.7% mid-year forecast.
All change
A lot has changed since we took the pulse of our key city markets in mid-2023 (see chart).
Singapore has ramped up stamp duty for non-residents, taking total purchase costs to around 60%. Hong Kong has moved in the opposite direction. New Zealand’s change of government may yet mean rules for foreign buyers are relaxed. Los Angeles has introduced a mansion tax. New York’s authorities opted for a de facto ban on short-term lets. Yet, despite the constant policy changes, alongside economic uncertainty and heightened geopolitical risk, prime prices have held up.
Auckland emerges as the front-runner for 2024, anticipating a robust 10% increase in luxury prices. Contextually, this surge is best understood as a market correction, compensating for a previous peak-to-trough dip of 20%. Dubai, last year’s leading city, claims third spot in 2024 with projected prime price growth of 5%. After its stellar post-pandemic performance the rate of price growth is slowing, but a scarcity of new prime supply and renewed demand from pivotal markets like China and India will see it remain in positive figures. See the report for more.
House prices
The broader UK housing market is also having a late-2023 resurgence. House prices climbed 0.5% in November, Halifax said yesterday. That's the second consecutive monthly increase.
The resilience "continues to be underpinned by a shortage of properties available, rather than any significant strengthening of buyer demand," says Kim Kinnaird, Director, Halifax Mortgages. We agree, though we do think the easing of mortgage rates since late-July has offered buyers some much-needed clarity. If we haven't reached a turning point in this cycle, we must be there or thereabouts. Here is Knight Frank's Head of UK Residential Research Tom Bill:
"The jury is still out on the sustainability of recent rises in such a thin market, but if we are not at the bottom of the current housing market slowdown, we must be close. The key is that sentiment has become more buoyant in recent weeks as the economic data improves and keeps downwards pressure on mortgage rates.
"Transactions numbers, which are a better indicator for the overall health of the market than prices, should be stronger in the next six months than the last six provided a general election is not called in the first half of 2024. As the economic backdrop improves, the political temperature is rising, which is likely to be the biggest risk faced by the UK housing market over the next 12 months.”
Housebuilding
We've been tracking the contraction in housing output in recent notes. More data came Wednesday via the S&P Global Purchasing Managers Index, which registered another sharp fall in housebuilding during November.
Residential construction activity has now decreased in each of the past 12 months. The latest reduction is among the fastest seen since the global financial crisis in 2009. "Elevated mortgage costs and unfavourable market conditions were widely cited as leading to cutbacks on house building projects," says Tim Moore, Economics Director at S&P Global Market Intelligence.
Cutbacks in output, plus the easing cost of raw materials, prompted the steepest fall in purchasing costs for fourteen years. Average lead times among vendors shortened for the ninth successive month
In other news...
The Bank of England base rate will stay at 5.25% until Q3 next year and will end 2024 at 4.50%, according to a poll of economists (Reuters), the UK's labour market is finally cooling (Reuters), starting salaries rise at slowest pace in nearly 3 years (Reuters), investors bet on rapid ECB rate cuts as economic outlook darkens (FT), companies rush to take advantage of sharp drop in borrowing costs (FT), commercial property confronts the ‘comedown’ from easy money (FT), US unemployment rate to show early signs of recession (Bloomberg), and finally, NYC's financial district gets luxury apartments in former office tower (Bloomberg).
Photo by Sulthan Auliya on Unsplash