Aurelia Butler

A combination of high valuations and rising mortgage costs threatens to drag house prices down in several advanced economies, ending a two-year surge in price growth on the back of record-low interest rates. After easing the burden on homeowners at the start of the pandemic, central bankers are now tightening monetary policy at a fast pace to cope with high inflation while a global recession is looking increasingly likely — exposing markets to a potential crash. Though experts think that global growth in house prices is only likely to slow, they warn that some specific countries will suffer outright falls as their central banks make big rate rises. In New Zealand prices have already fallen and some indicators, such as mortgage approvals and applications, show that activity in the US is starting to stutter. “Over the last month, there has undoubtedly been a slowdown in purchase activity [in the UK],” said Mark Harris, chief executive of UK mortgage broker SPF Private Clients. “That slowdown is down to rising rates, but also wider economic concerns: the energy crisis, inflation, the cost of living generally.”The risk of price falls is particularly acute in other English-speaking “Anglo” economies such as the US, Canada and Australia, as well as Nordic countries such as Sweden, according to Vicky Redwood, senior adviser at Capital Economics. “If inflation turns out to be even more of a problem, with interest rates across all countries rising much further than is currently expected, then that could cause more widespread house price falls,” Redwood said. She is already expecting falls of 20 per cent in Canada and New Zealand, 15 per cent in Australia, 10 per cent in Sweden, while home values could fall by 5-10 per cent in the UK and US. Markets with a high level of home ownership and use of adjustable rate mortgages were most prone to price falls, several economists said. “The higher both these proportions are, the greater the pass-through of rate increases,” said Stefano Pica, an economist who has written on the structure of national mortgage markets. “There will be a hit to general demand as mortgage holders exposed to rising rates consume less. This will feed through to lower house prices eventually.” Forced sales are possible in markets where a large proportion of mortgages are subject to variable rates. “If households start to struggle with rising mortgage costs, then we could see some delinquencies, defaults and [forced] sales,” said Barbara Rismondo, senior vice-president at Moody’s, a rating agency. Adjustable-rate mortgages are not the only source of concern. Some of those markets seen as susceptible to price falls have low levels of variable-rate mortgages, at below 50 per cent, but a large proportion of borrowers who are set to renew their fixed-rate contracts in the near term. Unless inflation quickly falls and central banks reverse their monetary tightening, those new contracts are likely to be at higher rates. “In many cases, including in the UK and New Zealand, the average term of the fixed mortgage is relatively short, at less than a couple of years,” Redwood said. Unlike the UK and US, several smaller advanced economies did not experience significant corrections in their housing markets after 2008, leaving prices growing steadily for most of the past 20 years. Then came the pandemic. Rock-bottom interest rates and other policies to boost house prices, coupled with a search for bigger homes as the global health crisis forced people to spend more time indoors, supercharged the market. According to the OECD’s real house price index, between the end of 2019 and the third quarter of 2021, home values increased by more than 30 per cent in New Zealand, with Australia, Canada and the US recording increases of about 20 per cent. With prices already at high levels relative to incomes, higher rates may depress demand as the cost of taking out a mortgage deters prospective buyers. Five-year fixed rates in Canada were already beyond 5 per cent — up from 1.9 per cent in January 2021 — before the Bank of Canada’s announcement this week that it was hiking rates by 100 basis points. Phil Soper, chief executive of Royal LePage, a large Canadian estate agent, said higher rates were definitely making a difference. “People in Canada don’t purchase homes based on their sticker price, they buy based on their carrying cost,” he said, referring to the size of mortgage payments. “When these rise it pushes people out of the market.” However, he added that tight supply could save the market from outright price falls. A global recession, which economists believe is an increasingly likely scenario over the winter, would lead to more pain in the housing market. The biggest risk is that a slowdown leads to troubles in labour markets. “To see a significant fall [in house prices] a burst of unemployment would need to occur . . . [forcing people to sell],” said Innes McFee, chief economist at Oxford Economics, a research group.Markets have started to price in the increased risk of a global recession. Broad declines have been recorded in a range of commodity markets as investors bet that higher borrowing costs will start weighing significantly on demand. One bright spot is the relative health of the financial system. Analysts remain confident that, having built up stronger capital buffers following the financial crisis in 2008, the banking system in advanced economies remains capable of weathering any significant fall in home valuations. Research by Moody’s shows that “even in case of a mild or even more pronounced house price decline there is no significant risk to the balance sheets of major financial institutions”, said Rismondo. More

WASHINGTON (Reuters) -The International Monetary Fund said its executive board approved a $235.6 million disbursement to Kenya on Monday as it approved a third review of the country’s Extended Credit Facility and Extended Fund Facility arrangements.The disbursement is usable for budget support and brings such payouts to $1.208 billion under the 38-month arrangements, which were worth $2.34 billion when they were approved in April 2021, the IMF said.”Kenya’s economy has rebounded strongly in a challenging environment and is projected to grow 5.7% in 2022,” the IMF said in a statement, adding that inflation, which hit 7.5% in June, was likely to peak this year before easing back to the Central Bank of Kenya’s 2.5% target by early 2023.”Downside risks predominate in the near-term. Uncertainties stem from the war in Ukraine, continuing drought in the semi-arid regions, unsettled global financial market conditions and the political calendar,” the IMF said. “But Kenya’s medium-term outlook remains favorable.”The IMF said that Kenya showed “very strong” performance in tax collections during the 2021/22 fiscal year, which has created fiscal space to temporarily cushion part of the higher fuel and food costs that have hit households while still meeting the program’s fiscal targets.”The approved fiscal year 2022/23 budget broadens tax collection and maintains careful expenditure control while protecting social spending,” the IMF said. More

WASHINGTON (Reuters) -The International Monetary Fund on Monday said its executive board approved a $1.04 billion, 40-month Extended Credit Facility loan arrangement for Tanzania, with an immediate disbursement of about $151.7 million.The IMF said in a statement that the financing package would assist Tanzania’s economic recovery, address spillovers from Russia’s invasion of Ukraine, help preserve macroeconomic stability and support structural reforms.”Reforms will focus on strengthening fiscal space for much-needed social spending and high-yield public investment, resuming and advancing the authorities’ structural reform agenda,” and strengthening financial stability, the fund said.The ECF facility, equal to 795.58 Special Drawing Rights, or 200% of the country’s quota, or IMF shareholding, follows IMF emergency support during 2021 of about $561.5 million. The fund has been seeking to convert low-conditionality COVID-19 support loans to longer-term, traditional loan packages that require policy reforms. The IMF said the new arrangement “is expected to catalyze additional bilateral and multilateral financial support” and help attract private sector investment.Spillovers from the war in Ukraine were stalling Tanzania’s gradual recovery from the COVID-19 pandemic, the IMF said.Tanzania faces “considerable development and reform challenges and external headwinds, including COVID-19-induced scars and the war in Ukraine, (that) risk eroding hard-won economic gains,” IMF Deputy Managing Director Bo Li said in the IMF statement. More

“We need to move quickly,” he said on Monday as the Senate opened for the week.The legislation is a slimmed-down version of a bill that members of Congress have been working on for well over a year, expected to include $52 billion in subsidies for the industry and a tax credit for companies that manufacture semiconductors in the United States.”Without these incentives from Congress, the capital investment required for expanding production is not economically viable in the United States, given other global alternatives,” Schumer said.Lawmakers hope to pass the legislation and send it to the White House for President Joe Biden to sign into law before they leave Washington for their annual August recess. More

(Reuters) – Cryptocurrency lender Celsius Network said bitcoin mining is key to the company’s restructuring efforts at a U.S. bankruptcy court hearing on Monday in Manhattan. New Jersey-based Celsius received approval from U.S. Bankruptcy Judge Martin Glenn to spend $3.7 million in construction costs at a new bitcoin mining facility and $1.5 million on customs and duties on imported bitcoin mining rigs. Patrick Nash, a lawyer for Celsius, told Glenn that bitcoin mining could provide a way for the company, which halted other business operations like its cryptocurrency lending, to repay customers, whose assets its froze in the weeks leading up to its bankruptcy filing.”In a world where the crypto market rebounds, the mining business has the potential to be quite valuable,” Nash said.Celsius filed for Chapter 11 protection on July 13, listing a $1.19 billion deficit on its balance sheet. Crypto lenders’ business model came under scrutiny following a sharp crypto market sell-off spurred by the collapse of major tokens terraUSD and luna in May.Celsius’ assets shrank amid the extreme volatility, and its freezing of customer accounts was an attempt to stem losses and stabilize its business, Nash said.Celsius hopes the mining effort will help it repair its relationship with customers, some of whom sent threats and hate mail to some company employees in the weeks before the Chapter 11 filing. But a group of equity investors previewed a possible fight for control over the bitcoin mining operations. Dennis Dunne, the investors’ lawyer, said they may argue that the newly mined coins should be considered property of the UK subsidiary that raised the funds for the mining operation, rather than being distributed for the benefit of all Celsius creditors. Customers might also object to Celsius’ spending on bitcoin mining vendors at a time when their own recovery is in doubt, the U.S. Department of Justice’s bankruptcy watchdog said. More