A weekend topic starting with Yahoo Finance. “The Federal Reserve’s top figure said Thursday that the central bank should have acted sooner to pull back on its pandemic-era stimulus and get ahead of rising inflation. Fed Chairman Jerome Powell told the Senate Banking Committee that with prices increasing at the fastest clip since 1982, easy money policies from the Fed — combined with longer-than-expected supply chain snags — appear to be behind inflation. ‘Hindsight says we should have moved earlier,’ Powell said, adding that ‘we’re going to use our tools and we’re going to get this done.’”
From Bloomberg. “Finding a home to buy is only the first struggle. Then there’s paying the mortgage. That’s become increasingly challenging, with the average American monthly mortgage payment rising to the highest level ever. It’s now $1,230 per month for a 30-year, fixed-rate loan, according to Zillow. That’s up 36% from the average of $905 a year ago and a 6% increase from January.”
“In the past year, the typical U.S. home increased almost 20% in value, from about $272,000 to $326,000. Although mortgage rates only inched higher for most of 2021, that uptick combined with rapid home-price appreciation to push the average monthly mortgage payment to a record high.”
“That estimate assumes the homebuyer is making a 20% down payment on their house, and taking out a mortgage for the remainder. But in fact, almost 60% of buyers last year who purchased their home using a mortgage put down less than that, according to Zillow data.”
The Sacramento Bee in California. “‘I think the big issue is that rates have increased and buyers have rushed to the market,’ said Ryan Lundquist, certified residential appraiser. ‘There’s a fear of missing out vibe that’s clearly taking place at the present moment.’ Interest rates on mortgages have changed significantly in the last six months rising from 3% last year to more than 4%. ‘Our market is very sensitive to rate changes, there is a reaction in the market when rates rise,’ Lundquist said.”
“When will the market finally slow down? It’ll take time to tell, Lundquist said, pointing to 2018 where interest rates near 5% caused the housing market to slow significantly. ‘It’s not something that’s sustainable forever,’ he said. ‘I think it’s a good thing for rates to rise to get us out of this mess.’”
The Globe and Mail. “The first of multiple rate hikes from the Bank of Canada is in the books and banks have already boosted their prime lending rates by 25 basis points to 2.7 per cent. Now borrowers all want to know the same thing – where does this end? Canada, and the world, is in largely uncharted territory. Not even our central bank knows how high prime rate could go, as its off-base forecasts clearly demonstrate. Expectations of a slowing future economy don’t necessarily imply a mild rate-hike cycle. Inflation is ‘nothing like we have had in decades,’ U.S. Federal Reserve chair Jerome Powell said Wednesday.”
“I like to say our central bankers are firemen who’ve arrived late to an inflation fire. After the 1973 oil shock, central banks also took too long to tighten monetary policy. Inflation hit double-digits and the prime rate just about doubled. The 1970s were a different era with far less consumer leverage (among other things), but while history may not repeat this time, it could rhyme. The Fed’s Mr. Powell reminded US Congress on Wednesday, ‘the economy evolves in unexpected ways.’”
The Financial Post. “More aggressive moves by the country’s central bank could put a halt to the housing fever. ‘If (the Bank of Canada) hikes are anywhere near the 175+ bps that’s priced in, the housing market’s going to hit a brick wall,’ said mortgage expert Rob McLister. ‘I suspect that kind of move would take at least 18 months, if it happened.’”
From Better Dwelling. “Real estate investors were cautioned that risk happens fast, from Canada’s oldest bank. BMO Capital Markets warned clients to expect the housing market to ‘be tested.’ Higher interest rates and the end of ‘too loose’ policy are expected to cool price growth. In frothy real estate markets, sentiment can shift very fast when prices slow, and the FOMO fades. If that’s the case this time, expect fewer buyers and more inventory.”
“In February, a typical home (aka the benchmark price) saw 35.9% annual growth. BMO also cites Vancouver and Calgary as additional examples of price growth acceleration. This is on top of already lofty gains seen for the past two years. ‘On an annualized basis, price growth is running at around a 50% rate more recently,’ says Kavcic. ‘As shown in 2017, psychology can change quickly the minute price expectations change.’”
“For those unaware of BMO’s reference to 2017, it was the last time interest rates began to take off. With the help of other policy tools, tight markets like Toronto and Vancouver saw prices drop. All of a sudden, inventory started to appear. Lofty immigration targets used to justify rapid price growth didn’t matter. That is until 2019, when the mortgage market got a little stimulus and went on roids in 2020.”
The Daily Mail. “House prices in Australia’s biggest city could fall a staggering $200,000 by the end of next year, the Commonwealth Bank fears. The Commonwealth Bank, Australia’s biggest home lender, is now predicting a house price drop starting this year in both Sydney and Melbourne, where auction clearance rates have peaked. RateCity research director Sally Tindall said house price growth in Australia’s two biggest cities was already slowing. ‘This could be the beginning of the end for the current property price peak in Australia’s two biggest cities,’ she said.”
“Reserve Bank Governor Philip Lowe had repeatedly promised to keep rates on hold until 2024 ‘at the earliest’ but now the Commonwealth Bank is forecasting a rate rise in June 2022 as wages growth, now at 2.3 per cent, accelerates to 3 per cent. The Commonwealth Bank is also expecting the cash rate to climb to 1.25 per cent by the end of March 2023.”
“‘Rising interest rates will generate changes in behaviour, which in turn will impact economic outcomes,’ said Commonwealth Bank head of Australian economics Gareth Aird. ‘For context, we estimate there are over one million home borrowers who have never experienced an increase in mortgage rates.’”
From Stuff New Zealand. “A buyer-seller standoff has led to monthly property sales in January slumping to the lowest since the fallout of the global financial crisis, CoreLogic head of research Nick Goodall says. There were 4113 residential property sales in the first month of the year, the lowest number in over a decade. He put the slump down to New Zealand being in a ‘transition market,’ where sellers still expected record prices, and buyers either refused or were unable to pay them.”
“A combination of a glut of properties on the market, worsening economic conditions, and a squeeze on home loans reducing the buyer pool was likely to result in buyers winning the standoff, Goodall said. Real Estate Institute (Reinz) figures back up CoreLogic’s findings, with residential property sales dropping by nearly a third in January.”
“Reinz chief executive Jen Baird said Kiwis got used to the market being a certain way, but the industry had experienced a pace change in the past two months. Real estate agents were having to talk to sellers about how the demand-supply situation had changed, as well as about the difficulties buyers were facing getting home loans.”