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World goods trade looks to have had one of its weakest years in over 40 years in 2023. While shipping diversions may weigh on trade in the very near term, we think that they are unlikely to dent trade activity over a longer period. The bigger headwind is …
1st February 2024
Leading indicators still point to weaker house price growth Although house price gains remained firm in January, we still expect them to soften in the months ahead. While rate cuts are on the horizon, they will do little to improve homebuying capacity. In …
Powell suggests first rate cut more likely to be May Based on the surprisingly explicit steer provided by Fed Chair Jerome Powell halfway through today’s press conference, we now expect the first Fed rate cut to come at the early-May FOMC meeting rather …
31st January 2024
We think the recent divergence between the BLS measure of apartment rents and other sources is due to reliability issues with the former, which we expect will be revised higher in future releases. Therefore, while it currently points to a downside risk to …
Typically, US REIT price indices have been a good indicator of the growth path for capital values in the direct market. That said, even though REIT prices rebounded in Q4 2023, we don’t expect the direct market to follow any time soon as the property …
30th January 2024
The December JOLTS data show a continued painless normalisation in the labour market – with job openings on a downward trend, layoffs unusually low and wage growth set for a sharp slowdown. Job openings have rebounded over the past couple of months …
The Reserve Bank of New Zealand launched a consultation on changes to its macroprudential framework last week. In our view, the proposed tweaks are unlikely to have a meaningful impact on the housing market one way or the other. The big picture continues …
The worsening in total returns to -3.0% q/q in Q4 was consistent with our expectations of bigger-than-average year-end markdowns. But the major takeaway was that the data and NCREIF’s release notes support our view that there will be growing distress and …
29th January 2024
The Q4 RICS survey suggested that occupier and investment sentiment remained pessimistic in Q4. We expect sentiment will be subdued in at least the first half of 2024, with credit conditions staying tight and growing signs of distress, particularly in the …
25th January 2024
Minor improvements in all sectors, but very gradual recovery ahead Having deteriorated for the best part of 2023, sentiment over all-property occupier demand and rents improved in Q4. However, the balances remain negative, pointing to subdued demand and …
Our new Fiscal Headroom Monitor uses a simplified version of the Office for Budget Responsibility’s (OBR’s) model to estimate how changes in market interest rate expectations and gilt yields are influencing the scope for the government to announce new …
We held a 20-minute online briefing this week to discuss our new forecast for the US housing market in 2024. You can watch the recording of the “drop-in” here . This Update recaps our answers to the most asked questions from clients and provides answers …
Norges Bank today reiterated that it will leave its policy rate at 4.5% “for some time”. But we think that inflation will fall rapidly this year, so when the Bank does start to cut rates, it will do so more quickly than its forecasts suggest. The decision …
January’s flash PMI surveys suggest that GDP growth in advanced economies ticked up from a very weak pace at the start of 2024. And with price pressures still strong, central banks will probably continue to push back against expectations for rate cuts in …
24th January 2024
The Bank of Canada’s decision to drop its tightening bias today is the first step toward interest rate cuts, particularly as the Bank also hinted that it may be willing to look through elevated mortgage interest costs and rent inflation. We continue to …
The new cap on international student visas is another reason to expect population growth to slow sharply. That will give the Bank of Canada confidence that CPI rent inflation will ease later this year, providing a clearer path for headline inflation to …
23rd January 2024
Central banks will probably continue to push back on expectations of rate cuts at their scheduled policy announcements in the coming weeks. But with inflation and wage pressures clearly moderating, we still think the Fed, ECB and Bank of England will cut …
History suggests that when one Monetary Policy Committee (MPC) member votes to cut interest rates, a majority of the nine members will agree about two meetings later. There have been 14 turning points in Bank Rate since the MPC’s inception in 1997, by …
The Bank of Japan sounds increasingly confident that it will be able to achieve its inflation target on a sustained basis. With Mr Ueda at the post-BOJ-meeting press conference again emphasising the importance of the spring wage negotiations, we think the …
While Australian households are as indebted as ever and mortgage payments have hit fresh record-highs, lending standards continue to be sound, loan defaults remain subdued and banks are well capitalised. Accordingly, there’s no compelling case to tighten …
We expect evidence of distress to ramp up this year as loan extensions end. Many borrowers will be forced to either inject new capital, return assets to lenders or sell into a soft market. Those assets returned to lenders will also ultimately end up on …
22nd January 2024
Lenders ready to meet increasing mortgage demand The latest Credit Conditions Survey showed a rise in the availability of mortgage credit in Q4 as financial market interest rates fell, but demand for mortgages slipped as mortgage rates took time to catch …
18th January 2024
The Bank of England’s Q4 Credit Conditions Survey suggests the worst of the drag on economic growth from higher interest rates is fading. That suggests an economic recovery will begin later this year. The net percentage balance of banks’ supply of …
Lower mortgage rates supporting demand The decline in mortgage rates appears to be supporting demand, with home sales rebounding last month. While prices continued to fall in December, the sales-to-new listing ratio is now pointing to positive house price …
16th January 2024
We are downbeat on industrial total returns over the next two years compared to the consensus because of our relatively pessimistic views on both rents and cap rates. And we think the risks to long-term returns are skewed towards the downside, which, if …
The Bank of Canada’s quarterly business and consumer surveys continue to flash warning signs about the outlook for the economy and labour market. The normalisation of inflation expectations remains painfully slow, however, presenting a risk to our view …
15th January 2024
We doubt the recent resilience of business investment in the face of higher interest rates will last. Instead, we think a drop back in business investment will contribute to the economy continuing to stagnate in the first half of this year and a modest …
There was a wide disparity in house price growth across regions in 2023 and little reason to think that this year will be any different. Following the recent decline in mortgage rates, we suspect the largest rises in prices will be in the regions that …
We doubt that the modest fall in mortgage rates we anticipate this year will bring a great deal more stock onto the market. Because of that, the supply of existing homes will remain very tight, so we’re now forecasting a more subdued recovery in existing …
12th January 2024
The lagged effects of the weak economy and high interest rates may mean that loan default rates rise in the coming months. But the prospect of interest rate cuts later this year will mean they won’t rise much. Higher interest rates and the weak economy …
10th January 2024
The surge in Chapter 11 business bankruptcy filings last quarter is not as bad as it looks, as many of them related to the WeWork failure. Excluding those, bankruptcies trended lower at the end of 2023 and, with corporate bond yields falling sharply in …
Our total returns forecasts for 2024 are significantly below consensus, as we predict that value falls will reach double digits for the second consecutive year. Retail stands out as the only sector where we expect positive returns, but distress in the …
9th January 2024
The surge in spending by state & local governments has boosted economic growth over the past year but, with tax revenues falling back in recent quarters, that boom is now set to fade. While there has been plenty of commentary on the support to the economy …
In what was an extremely volatile year for the housing market, we made two key forecasting errors. Firstly, we didn’t anticipate the extent of the rise in mortgage rates. Because of that, we underestimated how tight supply in the existing housing market …
5th January 2024
Our forecast of earlier Bank Rate cuts means that mortgage rates will be significantly lower than we had anticipated this year, which will lead to a stronger recovery in demand from mortgaged buyers. With little reason to think that demand from cash …
The redirecting of trade ships away from the Red Sea and the associated rise in shipping costs are unlikely to lead to a resurgence in global inflation. However, if the warfare underpinning the disruption to shipping escalates into a wider regional …
4th January 2024
Australian household finances are in better shape than the plunge in the household savings rate would suggest. While we still think that GDP growth will slow more sharply than expected over the coming quarters, there’s a clear risk that households will …
While SVB’s collapse in March and sharper rises in interest rates led to larger-than-expected falls in commercial real estate (CRE) values, our expectations for sector and regional winners were broadly correct. A year ago, we outlined our key calls for …
3rd January 2024
JOLTS data point to slower wage growth The further decline in job openings to 8.79 million in November, from 8.85 million, was a bit gloomier than expected given that the JOLTS measure had previously dropped below the level implied by the both more timely …
It is no secret that strong immigration is pushing up rents but, as rent growth for new tenancies was little changed last year, this does not fully explain the surge in CPI rent inflation. The CPI measure is picking up unusually large rent increases on …
In a change to our previous forecast, we now think that the first interest rate cut from the Bank of England will happen in June this year rather than in November. We still think that interest rates will be reduced from 5.25% now to 3.00% in 2025. That’s …
Although the manufacturing PMIs have overstated the weakness of industry for a while, the big picture from December’s surveys was that global industrial activity was barely growing at the end of 2023. The forward-looking indicators point to further …
2nd January 2024
Housing market still set to cool Australia’s housing market showed signs of life in December. However, we still think an affordability crunch will temper house price gains in the months ahead. Allowing for seasonal swings, house prices across the eight …
We expect the sharpest fall in apartment completions in 2025-26 in Boston, Denver, NYC and Seattle. Those cities will also be joined by Sunbelt markets where oversupply is already denting rents, including Austin and San Antonio. By contrast, there is …
28th December 2023
While we got mortgage rates and lending roughly right in 2023, house prices fell by less than we expected as longer mortgage terms, strong demand from cash buyers, and tight supply came together to support them. There is little reason to think that these …
Industrial output has usually fallen rather sharply whenever firms were as pessimistic about the production outlook as they are now. That’s consistent with our view that GDP growth next year will be weaker than most anticipate. One thing that stood out …
The rerouting of trade ships away from the Red Sea has come at a time of disruption to shipping elsewhere in the world, but it is unlikely to alter the broad pattern of falling core inflation in 2024. We expect the recent rise in oil prices to prove …
21st December 2023
House prices will limp along in 2024 Although house prices in Melbourne have started to fall anew, we doubt that they are the canary in the coal mine. A persistent shortfall in housing supply should ensure that house prices across most of Australia keep …
Most major DMs need to shrink their primary budget deficits significantly and, for various reasons, most are likely to find it hard to do so. This will exacerbate growing worries about fiscal sustainability. Fiscal deficits increased significantly in …
20th December 2023
While the income tax cuts due next year are widely seen as necessary to reverse bracket creep, the income tax burden isn’t particularly onerous by historical standards. However, Australia taxes income far more heavily than most other advanced economies …
