SOARING: Global housing markets, and related equities, are in the spotlight as Central Banks more aggressively push up mortgage rates to curb inflation. US 30-year mortgage rates are the highest in 15-years, our housing misery index at 40-year highs, and new home sales plunging. The US may lead the global housing slowdown, but other markets are more exposed, with floating-rate mortgages, high debt-service ratios, alongside rising rates. Many equity markets also have long ‘supply chains’ of exposed sector stocks. But this is a cyclical not structural issue for most, unlike 2007, with most household balance sheets secure and mortgage rates fixed.
PANDEMIC: Global housing prices have risen by 13% vs pre-pandemic levels, driven by low interest rates, lockdown savings and a ‘dash for space’. This created a significant ‘wealth effect’ for the c65% of households who own a home. Surging mortgage rates and easing job markets will cool not crash housing given lack of imbalances. Many regulators already moved to reign in mortgage exposure, pushing up bank capital levels or cutting mortgage loan-to-value ratios.
EXPOSURE: Countries with high household debt and adjustable-rate mortgages are most vulnerable, like Norway, Australia, Sweden (see chart). The stocks ‘supply chain’ is long. Taking US as example, from construction materials (VMC, MLM), to homebuilders (DHI, LEN), selling brokers (HOUS, RDFN), mortgage specialists (RKT, INTU), investors (EQR, NYMT), and more.
All data, figures & charts are valid as of 16/06/2022