Ultra-low rates no longer driving home prices, poll findsBusiness | 27 Nov 2019 2:27 pm
The era of rock-bottom interest rates is not yet over, but the boost given to global property prices by easy monetary policy since the financial crisis appears to be ending, according to Reuters polls of over 100 housing market experts.
More than a decade of easy money has pushed most asset prices to record highs, including house prices, which have climbed each year at many multiples of consumer price inflation and wage gains, making many markets unaffordable for first-time buyers.
The change in sensitivity to interest rates is not universal. But it is particularly notable in the United States, where the Federal Reserve has cut rates three times this year with no major boost to the housing market outlook.
The combined findings of the latest Reuters polls this month, have implications for the effectiveness of future monetary policy on real estate.
“Monetary policy's ability to stimulate housing demand is far less effective than earlier in the cycle," said Scott Anderson, chief economist at the Bank of the West.
Of the seven closely-watched housing markets polled by Reuters – the U.S., Britain, China, India, Canada, Australia, and Dubai – none was rated by analysts as fairly priced, and particularly in big cities.
Broadly speaking, where house prices are rising, analysts expect them to be tame next year and to be more reliant on incomes rather than the cheap cost of borrowing.
“I think the issue really in most markets is: we've had a big upward price adjustment over the past 10 years because of ultra-low rates, and that process is sort of hitting its natural limits...what needs to happen is, you need to have prices driven by wage inflation," said Liam Bailey, global head of research at Knight Frank.
Analysts expect house prices in the U.S. and the UK to rise over the next two years but at a slower pace than what was predicted three months ago. And Dubai property prices are expected to tumble further until 2021.
U.S. house price inflation has slowed over the past year and a half, roughly coinciding with the opening salvos of the ongoing U.S.-China trade conflict.
Property prices and turnover in the UK have taken a knock, particularly in London, since the shock vote in 2016 to leave the European Union, and any price rises in the coming year are
expected to lag inflation.
In China and India, house prices are expected to rise by about 3 percent next year – barely above consumer price inflation in one and below it in the other.
But the trade war and an ongoing liquidity crisis in India's banking sector will likely drag on those respective property markets.
Median 2020 house price forecasts for Canada and India were upgraded modestly.
Australia was a notable exception, where expectations for next year doubled to 5 percent over the last three months following a burst of activity thanks in part to Reserve Bank of Australia interest rate cuts. But even analysts there were skeptical about how long the rebound would carry on.