Global central banks have accelerated tightening, epidemic prevention and relaxation, and high house prices in Europe and the United States have reached an inflection point?

Reporter | Wang Pinda

Since the COVID-19 pandemic, the upward momentum of global housing prices has continued. The latest data show that U.S. house prices rose nearly 20 percent year-on-year in the third quarter, and U.K. house price gains also set a new 15-year high.

According to the U.S. Housing Finance Agency's (FHFA) house price index report released at the end of November, U.S. house prices rose 18.5% year-on-year in the third quarter of 2021, a record quarterly increase. U.S. house prices also rose 4.2 percent in the third quarter compared to the previous quarter, second only to the second quarter of this year.

The current house price increase in the United States is very general. In the third quarter of this year, house prices rose year-on-year in all 50 states, as well as in Washington, D.C. All of the top 100 cities also saw home prices rise, with Philadelphia, the weakest, also rising 9.9 percent.

Uk house prices are rising equally fast. The house price index released by British mortgage lender Halifax on December 7 showed that UK house prices rose 8.2% year-on-year in November and 1% month-on-month. UK house prices rose 3.4% month-on-month from September to November, the largest quarterly increase since late 2006.

The average UK home price has risen to a record £273,000 per suite in November. Since the outbreak of COVID-19 in the UK in March 2020, UK house prices have risen by an average of £1,700 per month.

Russell Galley, general manager of Halifax, believes that the reasons behind the continuous rise in house prices in the UK are the shortage of housing supply, a strong labor market, and a decline in mortgage interest rates due to high competition.

November's house price data also suggests that the rise in UK house prices is not just due to tax breaks during the pandemic. From July 2020, the UK government had waived stamp duty for residential buyers in the £500,000 range, and the offer was halved in June and fully ended in October. The data shows that house price increases continued in November after the end of the tax break.

According to the Financial Times, the COVID-19 pandemic has caused the most pervasive house price increase in the world in nearly two decades. More than 90% of the more than 40 countries counted by the Organisation for Economic Co-operation and Development (OECD) have seen house price increases.

The decline in borrowing costs is an important reason for the recent rise in global house prices. Since the outbreak of the new crown epidemic, the central banks of major economies have adopted loose monetary policies, and the Federal Reserve, the European Central Bank, and the Bank of England have all reduced interest rates to the lowest level. Falling interest rates have led to lower borrowing costs, which has boosted housing demand and caused house prices to rise against the trend in a weak economic environment.

The latest data released by the Bank of England shows that the real interest rate paid on new MORTGAGEs in the UK in October was only 1.59%, down 19 basis points from September and the lowest on record. Real interest rates paid on stock mortgage loans fell to 2.03 percent, also a record low.

In addition, the global savings rate has increased significantly during the pandemic. During the pandemic, many governments have introduced fiscal stimulus policies to subsidize employee wages or pay cash directly to the public. At the same time, the decline in economic activity has reduced consumption, leading to an increase in the savings rate and an increase in the demand for housing.

Demand for work from home and remote classes during the pandemic has also pushed up house prices. Working from home and attending classes often requires more space for activities, so more people are choosing to buy larger, less crowded housing. This has also led to an increase in demand for related housing.

For example, london, the capital of the United Kingdom, is densely populated and crowded, and london house prices rose by only 1% year-on-year in November. In contrast, house prices in Wales rose 14.8% year-on-year, Northern Ireland house prices rose 10% and Scotland also rose 8.5%.

However, the momentum of global house price growth has also shown some signs of easing recently.

As high inflation continues and major central banks around the world begin to adopt tightening policies, borrowing costs at historicly low levels are likely to pick up in the future. With the exception of the European Central Bank, which still insists on no austerity, both the Fed and the Bank of England have tightening momentum.

The Fed began to scale back its purchases in November and is likely to accelerate in December, with expectations of rate hikes significantly ahead of schedule. Although the Bank of England did not ultimately decide to raise interest rates in November, Bank of England Governor Bailey said that it was also "very close" to raising interest rates at that time, and there was a greater possibility of raising interest rates in the short term.

With the gradual relaxation of epidemic prevention measures, the demand for buying large houses due to remote work is no longer as strong as before. Halifax data showed that UK condominium prices rose 10.8% year-on-year in November, compared with just 6.6% for single-family homes. "This could mean that the 'battle for space' for housing has eased more than it was in the early days of the pandemic." Halifax general manager Gurry said.

On a monthly basis, house price growth in the United States also tends to moderate. Another popular measure of U.S. home prices---- the S&P Case-Shiller House Price Index shows that the year-on-year increase in U.S. house prices in September fell to 19.5 percent from 19.8 percent in the previous month, a modest decline, but the first decline in U.S. house price gains in nearly two years. The month-on-month increase in house prices in September was also only 1.18%, indicating that a large part of the year-on-year increase was contributed by this spring and summer.