Prime global house price growth picks up as central banks eye rate cuts
Making sense of the latest trends in property and economics from around the globe
4 minutes to read
Prime global house prices rose 4.4% during the twelve months through March, according to Knight Frank's Prime Global Cities Index, out today. That's the strongest rate of growth since the third quarter of 2022 - a period when nearly 70% of central banks were tightening monetary policy.
Rather than heralding a return to boom conditions, upwards price pressures stem from relatively healthy demand set against continued low supply volumes. The pivot in rates—when it comes—will encourage more vendors into the market, leading to a welcome return to liquidity in key global markets.
Quarterly growth at 1.3% now aligns with the long-term quarterly average. Manila tops our table with 26.2% annual growth, followed by Tokyo at 12.5%. Indian cities are experiencing strong growth, with Mumbai at 11.5% and Delhi at 10.5%. In fourth place, Perth, at 11.1%, confirms the resilience of key Australian markets. See the full piece for more.
A steady hand
The Bank of England voted to hold the base rate at 5.25% yesterday and offered guidance that should cut some of the volatility we've been seeing in long term borrowing costs.
Two of the nine members of the Monetary Policy Committee voted to cut the base rate to 5% and the Bank's forecasts for inflation look a little more benign. The annual rate will almost touch the 2% target this quarter, before rising again through the latter part of the year. The forecasts suggest that inflation would dip to 1.9% in two years' time and 1.6% in 2027.
These forecasts are based on the market-implied path of the base rate, so act as a pretty clear signal that the MPC thinks rates are going to fall faster than investors are currently expecting, at least over the long term:
“It’s likely that we will need to cut bank rate over the coming quarters and make monetary policy somewhat less restrictive over the forecast period, possibly more so than currently priced into market rates,” BoE Governor Andrew Bailey told reporters at a press conference following the decision.
Mortgage rates
The near term outlook has also shifted again.
At the turn of the year, inflation appeared beaten and investors were pricing in as many as five or six rate cuts from the BoE before the end of 2024, prompting mortgage rates to fall rapidly as lenders battled for market share.
Then, beginning around March, a string of hotter inflation figures - particularly in the US - prompted investors to steadily pare back those bets. At the beginning of this week, pricing in financial markets suggested we'd see only two rate cuts this year, with the first coming as late as September. Every major lender has raised mortgage rates for new and existing customers during the past fortnight to account for that outlook.
But following yesterday's report, traders now think June is the most likely date for the first cut. While this isn't a dramatic move, it should put a stop to the prevailing surge in mortgage rates. Indeed, provided we don't see any nasty surprises in the next set of inflation figures, we'd expect mortgage rates to be largely steady until the base rate begins falling.
A moderate recovery
Roughly 4,200 households are rolling off fixed rate deals every day. By the expected date of the next election in mid-November, 868,000 households will be paying an extra £240 a month on ¬average for their mortgage, according to Financial Conduct Authority figures covered by the Times.
This is why an interest rate pivot will only prompt a moderate recovery in property values - waves of homeowners are rolling off sub-2% mortgages and face significantly higher monthly outgoings.
This week's RICS Residential Market Survey was consistent with other indicators showing the recovery has stuttered as mortgage rates have surged. The headline rate of new buyer enquiries softened to a new balance of -1% in April, from +6% the previous month. Sentiment around the outlook for house prices has turned a little more cautious. Agreed sales did improve - the net balance of +5% was the strongest reading since early 2021, though that reading was only a small improvement on the previous month.
A net balance of +23% of contributors noted an increase in the flow of new instructions during April. That's the most elevated figure for the new listings gauge since late 2020. Average stock levels have now picked up to a three-year high, at 43 properties per branch.
In other news...
From our team - Philippa Goldstein on rising profits in the London hotels market and Khadija Hussain on the rise of private credit.
Elsewhere - ‘Hydrogen town’ plan cancelled after protests over forced switch from natural gas (Telegraph), soaring immigration is fuelling Britain’s housing crisis, says Bank of England’s chief economist (Telegraph), Miami hamstrung by lack of schools (Bloomberg) and finally, US mortgage rates ease for the first time in six weeks (Bloomberg).