A weekend topic starting with Reuters. “The great unwinding of bloated central bank balance sheets could start as soon as next week. While investors have been in thrall to the U.S. Federal Reserve’s hawkish anti-inflation twist in 2022, the Bank of England is widely expected to hike UK interest rates for the second time in less than three months next Thursday and double its main policy rate to 0.5% in the process.”
“Much like the Fed, the process of so-called ‘quantitative tightening’, or QT, will be passive at first — the Bank will simply stop re-investing coupon payments and maturing gilts and reduce its holdings as they come due. Outright selling of securities is probably some distance off and will probably depend on how markets react to passive QT first. And its this last bit makes it all feel like a laboratory experiment for the central banking community as a whole.”
From DS News. “‘The Federal Reserve has signaled the end of the easy money era is near. In order to combat inflation, the Fed is expected to increase rates as soon as March. Mortgage rates typically follow the same path as long-term bond yields, which are expected to increase due to the Fed’s tightening of monetary policy, higher inflation expectations and an improving economy,’ said Mark Fleming, Chief Economist at First American. ‘The consensus among economists is that the 30-year, fixed mortgage rate will increase from its November rate of 3.1% to 3.7% by the end of 2022. Some forecasters predict rates will reach 4%, which is still historically low, but well above what buyers have grown accustomed to in recent years.’”
From Reuters. “The Bank of Canada’s decision to delay a rate hike for five more weeks will add fuel to Canada’s scorching housing market as buyers scramble to clinch deals before borrowing costs rise, realtors said. Derek Holt, head of capital markets economics with Scotiabank, expects prices to surge again over the next few weeks until the Bank hikes, likely on March 2. ‘The Bank of Canada seems to be dramatically downplaying the role of easy money as a contributor to hot housing markets,’ Holt said.”
The Financial Post. “The era of ultra-low pandemic interest rates, which has helped drive Canadian home prices to all-time highs, may be coming to end. Mortgage expert Rob McLister told the Financial Post that those holding variable-rate mortgages will be hit first, with the costs passed along between one day and one week following a rate hike. McLister added that a 0.25 per cent rate increase, which is the amount the market is expecting as a first hike, would have no impact on qualifying since the minimum qualifying rate is already more than 235 basis points over five-year fixed rates.”
“‘For prospective prime borrowers, discounted five-year fixed rates would have to jump over 36 basis points for borrowers to start facing qualification challenges. And it would only be an issue for more highly indebted mortgage applicants (I’d estimate roughly 1 in 5 mortgage applicants),’ McLister wrote.”
From ABC News. “Domain’s latest House Price Report revealed the median cost of houses in Australian capital cities rose to $1.06 million in the December quarter. In Sydney, it’s considerably higher at just over $1.6 million —that’s an average increase of $1,100 per day over the course of 2021, or a total rise of $400,000. ‘We’ve seen record low interest rates support buyer activity, and we’ve also seen a high level of household savings,’ said Domain’s chief of research and economics Nicola Powell.”
From Stuff New Zealand. “The coming year is likely to be a tough one for investors, forecasters warn, with weakness predicted across most assets.
Data shows house price growth slowing with predictions of small falls later this year.”
“Inflation, which has reached levels not seen in more than three decades, is quickly changing the picture for investors who have become used to an environment of low interest rates and stimulus. The whole investing environment has flipped from ‘central banks are going to be printing money and keeping rates low forever’ to ‘central banks have a big job to do on inflation and they’re going to have to grit their teeth and keep going even if asset prices get a decent wobble,’ said ANZ chief economist Sharon Zollner. She said, if interest rates were going up, ‘the maths can change quite quickly for the likes of equities and the housing market.’”
“‘In the middle of last year the Reserve Bank was really out on a limb being the only ones talking about the need for higher interest rates, now everyone is on the same page… It’s a more volatile environment than investors have become used to.’”
“Zollner said volatility had been abnormally low recently because of the ‘morphine’ that central banks had been dosing the world with. She said there was a risk that central banks had painted themselves into a corner and had to keep hiking interest rates ‘until something breaks.’ ‘We could end up with a hard landing. Historically when central banks have realised they’ve got a massive inflation problem to address it ends in a hard landing.’”
From WFTV Orlando in Florida. “Week after week, Lucas Ragsdale watched neighboring apartments lease for higher and higher monthly amounts. Less than six months after he moved, the average apartment in his complex now rents for 50% more than he is paying. In generations past, blue collar and middle-class workers forced away from the downtown toward cheaper options would’ve sought starter homes. That road is being blocked, too.”
“Fewer than 2,000 were listed on the market as of mid-January, a historic low. At the same time, the price of available homes soared. Orlando’s median home sale topped $340,000 for the first time ever at the end of 2021, Orlando Regional REALTOR Association data showed. There’s also a new class of competition for young workers: investors, who swarm lower-priced investments in desirable areas, including starter homes and condominiums. The Orlando Business Journal calculated 11% of home purchases were by investors in the third quarter of 2021, a number that’s expected to grow.”
“Meanwhile, so-called starter homes are a hot commodity of older couples looking to downsize. Their life-long investments are tough to overcome by renters like Ragsdale, who sometimes pay up to 50% of their income on apartments. ‘It all becomes a lot more difficult when half your income is going to rent,’ he said. ‘It makes us worse consumers too, because we’re just living to survive.’”
From WINK News. “People in Southwest Florida are frustrated, as workers’ wages are not going up as quickly as housing prices. ‘You’ve got to do a lot of research and figuring out exactly what you can afford, because prices have increased dramatically,’ said Shelton Weeks, professor and director of the Lucas Institute for Real Estate Development & Finance at Florida Gulf Coast University. ‘And, unfortunately, wages have not kept up with the home prices.’”
“So does anyone benefit? Weeks says if you’re selling an existing home or downsizing, you’ve certainly benefitted from housing prices, but not so much people who are working or trying to save up for a home. The increase in wages has not only not kept up with housing prices, it has been significantly below housing price increases. ‘Sellers’ biggest concerns are where will they go once their house sells?’ Realtor Devin Sweazy said. ‘Sure, they can sell for an incredible profit, but then they are in the same position as all the others buyers… sell high, buy high.’”