HOUSING: Real estate is under pressure world-wide as interest rates have been aggressively hiked to levels not seen in over a decade. Global real estate stocks have fallen 24% this year, worse than the -17% for broader equities. Housing REITS have been near the weakest. Rising interest rates worsened already high housing prices, debt levels, and only partial pandemic recoveries in many markets. With more rate hikes to come in most countries these fundamental pressures will only rise. But investors may look to pivot to traditional interest rate sensitives, like REITS, if Fed rate cuts start to come into clearer focus later in 2023. See @RealEstateTrusts.
GLOBAL: The US saw some of the most dramatic house price growth in recent years, peaking at 20.8% rises in March (see chart). Before slumping as 30-year fixed mortgage rates breached 7%. Similarly UK price growth peaked at March’s 14.3% before plunging. This was worsened by the Truss government’s mortgage rate spike. 65% home ownership rates in these markets make house prices a hot button issue. But they are not alone. Swedish prices are down 14% in six months, worsened by a high mix of variable rates. Even Germany has seen a sharp slowdown.
IMPACTS: This is causing a global economic hangover, of depressed consumer sentiment and a negative ‘wealth effect’. US residential REITS (c15% of the sector) have slumped over 25% this year. This is only outpaced by office REITS where c50% are still work-from-home in the US, for example. Safer havens have been specialty REITS (gaming, billboards), resorts, and retail. China is its own outlier, already grappling with an oversized and over-indebted property sector.
All data, figures & charts are valid as of 13/12/2022