bymuratdeniz
By Fredrik Repton
Cooling housing markets are starting to have an impact on economic and monetary policy-making globally and some countries are leading the way.
Following a dizzying rally during the Covid recovery, global housing markets have cooled recently as affordability has declined. Due to its structure of longer mortgages, US house prices, as measured by the existing home sales median price, have fallen 5.9% from its peak but are still up 7.8% since a year ago. However, other housing markets have not been as resilient. The so-called high beta housing markets of Norway, Sweden, Australia, and New Zealand have experienced more pronounced drops in house prices. This is now starting to affect policymaking in these countries.
In Sweden, the combination of mostly floating mortgages, uncomfortably high inflation, and a central bank behind the curve but determined to catch up (last policy change was a 100 bps hike) means that house prices have already declined materially. According to Maklarstatistik, apartment prices have fallen 9.8% since the peak in March this year and 5.7% since a year ago. This fall has caused consumer confidence to drop to its lowest level since the early ’90s. The weakness in household consumption that is starting to unfold from lackluster consumer confidence will put the central bank in an uncomfortable situation of either having to cause further pain in the housing market and household spending or risk a prolonged overshoot of the inflation target.
One central bank that has already had to do such a trade-off is the Reserve Bank of Australia. At its latest policy meeting, the bank underdelivered versus market expectations with a 25 bps hike instead of 50 bps. One of the primary reasons for slowing the tightening cycle was the risk to household consumption from higher mortgage rates. In addition, the decline in house prices and hit to consumer confidence were referenced as reasons for its smaller policy adjustment.
It is natural that a broader set of factors are considered for monetary policy as hiking cycles mature. However, it is a long time since central bankers globally almost in synchrony had to worry about a fall in housing. Policymakers in high beta markets, where households are also most levered, will have to be extra vigilant with feedback from the housing market into the overall economy and financial stability. How they navigate the fall in house prices should be closely monitored by policymakers in countries like the US, UK, Euro-zone, and Canada where housing is cooling but has not yet moved distinctly lower.
This material is provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice. This material is general in nature and is not directed to any category of investors and should not be regarded as individualized, a recommendation, investment advice or a suggestion to engage in or refrain from any investment-related course of action. Investment decisions and the appropriateness of this material should be made based on an investor’s individual objectives and circumstances and in consultation with his or her advisors. Information is obtained from sources deemed reliable, but there is no representation or warranty as to its accuracy, completeness or reliability. All information is current as of the date of this material and is subject to change without notice. The firm, its employees and advisory accounts may hold positions of any companies discussed. Any views or opinions expressed may not reflect those of the firm as a whole. Neuberger Berman products and services may not be available in all jurisdictions or to all client types. This material may include estimates, outlooks, projections and other “forward-looking statements.” Due to a variety of factors, actual events or market behavior may differ significantly from any views expressed.
Investing entails risks, including possible loss of principal. Investments in hedge funds and private equity are speculative and involve a higher degree of risk than more traditional investments. Investments in hedge funds and private equity are intended for sophisticated investors only. Indexes are unmanaged and are not available for direct investment. Past performance is no guarantee of future results.
This material is being issued on a limited basis through various global subsidiaries and affiliates of Neuberger Berman Group LLC. Please visit www.nb.com/disclosure-global-communications for the specific entities and jurisdictional limitations and restrictions.
The “Neuberger Berman” name and logo are registered service marks of Neuberger Berman Group LLC.
© 2009-2022 Neuberger Berman Group LLC. All rights reserved.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
Be the first to comment