Housing prices plummet as central banks hike rates

The once thriving global real-estate sector is in free-fall

REAL ESTATE HOUSING BUBBLE

IF CORRESPONDENT

It is done. The period of steadily growing home values propelled by low-interest rates is approaching its end. Central banks were responsible for the enormous real estate boom, and soon they will have to deal with the fallout from the real-estate bubble burst.

The Chinese real-estate crisis It is already taking place in China. The second-largest economy in the world has ordered banks to provide financial assistance to real estate developers so they may finish unfinished projects. People are increasingly refusing to pay their mortgages because they understandably find it unfair to be required to do so for homes they cannot inhabit.

Compared to pre-pandemic levels, new home sales have plummeted, and housing starts have nearly halved. It will cause issues for heavily indebted real estate corporations, the banks they borrowed from, and the economy. The real estate industry accounts for about 20% of China's GDP. However, rising housing costs have already disappeared.

The China Banking and Insurance Regulatory

Commission (CBIRC) have advised banks to accommodate developers' funding requirements when required.

Despite the regulator's intervention, Chinese bank shares rose briefly due to optimism that Beijing will have enough policy tools at its disposal to contain the crisis.

It was unclear, meanwhile, if the banks could bear the mortgage strike's expense, which might be affecting 100 projects across 50 locations.

According to data provided by the banks, the connected mortgages have a total value of 2 billion yuan ($300 million). However, some analysts believe the actual number is much greater. For instance, Guangdong-based GF Securities estimated that the sum might reach 2 trillion yuan ($300 billion).

Since the creeping demise of Evergrande, China's second-largest developer, started in 2021, the country's real estate market, which contributes up to 30% of economic production, has been in turmoil.

Since then, the economy has begun to feel the adverse effects of its default on a sizable portion of its $300 billion debt pile.

The real estate market in America In the three months leading up to June, the US economy shrank for the second consecutive quarter, with the slumping property market

among the contributing factors. American home prices have skyrocketed in the two years since the coronavirus outbreak began in the spring of 2020, soaring by 20% in the year ending in May. However, the market is rapidly cooling, as seen by the steep decline in the average price of new houses in June.

In 2022, real estate market has disappointed many homebuyers. Already at record highs, home prices and mortgage rates continue to grow.

Others have put their property search on hold or given up because of escalating costs. The property market is declining as recession fears grow. New house sales are down, and development has slowed. Existing-home sales are below 2019 levels. As mortgage rates remain above 5%, applications have plummeted.

According to experts, home prices and mortgage rates will fall, so affording a home will remain challenging. Year-over-year home price growth is still in double digits. The Fed rate move will keep mortgage rates fluctuating. "Affordability is the biggest concern in the home market, and rising rates will make that worse monthly," said Zillow's senior economist.

June's median home price was $416,000. Price increases have slowed. NAR reports that median home prices for existing homes rose 13.4% year-over-year in June, compared to a 23% increase in June 2021.

New-home prices are decreasing. According to the US Census Bureau and HUD, the median price of a new house fell to $402,400 in June from $444,500 in May.

Navy Federal Credit Union's Robert Frick called it "the biggest break in home-price inflation." If existing home prices follow suit, annual surges that have driven millions of Americans out of the market may end.

New homes make up 10% of transactions and older homes 90%. Most market prices aren't decreasing. The 2011 housing prices will rise by 11%. It is less than the 16.9% year-over-year growth expected at the start of the year.

REAL ESTATE HOUSING BUBBLE

As higher mortgage rates reduce buyer demand, inventory and sales will rise, helping to lower prices In 2022. As a result, homes may lie on the market longer, and there will be more price cuts. Buyers who conduct more research may find a home with a price cut or better price negotiation.

David M. Dworkin and Bill McBride wrote at the National Housing Conference that home affordability is the worst since 1989, excluding the housing bubble of 2004-2008.

During the housing bubble, low teaser interest rates reset to levels homeowners couldn't afford. For example, in the 1980s, 30-year fixed-rate mortgage rates ranged from 9% to 18%, making homes unaffordable.

Researchers said today's market is different. Soaring housing costs are fueled by underproduction between 2008 and 2020, supply chain breakdowns since 2020, and rising demand since 2020.

The British crisis The United Kingdom seems to be defying the trend. Instead, property prices are rising at 13% annually, the most in over two decades, according to data from Halifax, the nation's largest mortgage provider. But, similar to other countries, the situation here, too, is evolving.

The Office for National Statistics released data on housing affordability based on home prices to average salaries. The ratios in Scotland and Wales, which fell short of the peaks recorded during the global financial crisis of 2007–2009, were 5.5 and 6.0, respectively. The ratio in England was 8.7, the highest since the data gathering began in 1999.

There were regional variances within England. The average cost of a home in Newcastle upon Tyne was 12 times the annual income of someone in the bottom 10% of the income distribution. It was 40 times greater in London, which is undoubtedly higher now. The ONS data only extends through March 2021; housing prices have comfortably outpaced salaries since then.

In 2022, UK house prices climbed at the quickest annual rate in 18 years as demand for larger homes outpaced supply. Halifax, a part of Lloyds Banking Group, reported prices rose 13 percent in June since late 2004. Prices climbed 1.8% from May, the most since early 2007.

A typical residence costs £294,845- a record high despite the cost of living problem. House prices rose every month in 2021 and 6.8% in 2022, or £18,849 in cash terms.

Halifax's CEO Russell Galley claimed that the supply-demand imbalance drives house prices. Demand is still high but has reduced to pre-Covid rates, and inventory is meager.

So far, property prices seem protected from the cost of living crunch. It is because those with lesser incomes are less active in purchasing and selling residences when the cost of living rises. Higher earners can employ their pandemic savings to spend during a crisis.

The housing market won't always be immune to the recession. But it's being supported by a "dramatic shift" in demand toward more extensive properties, with detached house prices rising almost twice as fast as flats over the past year (13.9 percent versus 7.6 percent).

Inflation and higher interest rates will put a strain on household budgets, which will affect property affordability. A slowdown in house price rise is still forecasted for the coming months, but it might arrive later than expected.

According to Halifax, Northern Ireland has the highest yearly house price gain, up 15.2% to £187,833. Wales follows with a 14.3% annual growth to £219,281. A Scottish property now costs an average of £201,549, surpassing £200,000 for the first time and up 9.9% from June last year.

London lags behind other regions with yearly price growth of 7.1%, but at £547,031, it remains the most expensive place to buy a home in the UK.

There comes a time when a house is just out of reach for prospective purchasers. Still, the market has not crossed this reality checkpoint because of the protracted era of extremely cheap borrowing rates. Central banks have made the exorbitant affordable by ensuring that monthly mortgage payments remain low.

It has been the case worldwide, which explains why the trend in housing prices has been steadily higher from New York to Vancouver, Zurich to Sydney, and Stockholm to Paris.

At least till now. Western central banks are rapidly boosting interest rates, increasing the cost of mortgages. A new borrower taking

out a 30-year fixed home mortgage was paying a rate of roughly 5.5 percent even before the US Federal Reserve announced a second consecutive 0.75-point increase in official borrowing costs. It is double what they were paying in 2021. This rise explains both the decline in American home purchases and the decline in home prices.

At the beginning of the pandemic, the Bank of England in the UK cut interest rates to 0.1 percent and kept them there for almost two years. Due to this, homebuyers could obtain fixed-term mortgages at incredibly cheap rates that peaked at 1.4 percent in the fall of 2016. However, since December 2021, the Bank has been tightening its policy, so those mortgages will increase once the fixed terms expire. As a result, today's average interest rate on a house loan is 2.9 percent.

The IMF's gloomy forecast According to central banks, the highest inflation in decades forces them to tighten monetary policy; nevertheless, they are doing so while major economies either enter or are about to enter a recession. Increased unemployment, declining GDP, and rising interest rates are deadly for home prices. Only the last of those is absent, but if the winter is as bleak as policymakers anticipate, it won't be long until dole lines grow longer.

The International Monetary Fund released gloomy predictions for the world economy last week. The fund claimed risks were significantly skewed to the downside and pointed out that all three of the world's major economic engines—the US, China, and the eurozone—were stagnating.

The IMF claims that only five years in the last 50 years had a global economic growth of less than 2 percent: 1974, 1981, 1982, 2009, and 2020. A complete halt in Russian gas exports to Europe, persistently rising inflation, or a debt crisis are a few potential reasons why 2023 might end up on that list. A worldwide housing crash would make it inevitable.

That is not to suggest that there aren't valid arguments in favor of removing excess from the real estate market. The young and the poor are disadvantaged by skyrocketing housing costs. It also causes capital to be misallocated into unproductive investments, increasing demographic pressures by deterring couples from having children.

Nevertheless, central banks are attempting to engineer a soft landing in which the downturn is brief and shallow. The increase in unemployment is just enough to reduce upward pressure on wages while remaining small.

editor@ifinancemag.com

INDUSTRY FEATURE LOGISTICS FLIGHT TRACKING

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More than 700,000 people were tracking the flight path of the US military plane believed to be carrying House Speaker Nancy Pelosi last August. She touched down in Taiwan at 10:50 pm local time, making Pelosi the first high-ranking American official to visit the selfgoverning island in 25 years, amid threats of a military response from China.

People were watching the flight's progress on FlightRadar24, a flight tracking site that uses open-source data to track flights. FlightRadar24 and tools like it, such as ADS-B Exchange, have been particularly useful, as people have used it to track private jet routes live for celebrities such as Taylor Swift and Kylie Jenner to planes to Russian Oligarchs and now, Nancy Pelosi.

FlightRadar24 had so much traffic on August 2 that the home page reads: “We are seeing high demand in users wanting to access our services. As a temporary measure, there is a waiting room to prevent crashing. Paying subscribers can log in to bypass the waiting room.” FlightRadar24 combines data from several sources, including ADS-B, MLAT, and radar data, aggregated with schedule and flight status information from airlines and airports.

ADS-B stands for automatic dependent surveillance-broadcast, which is a technology that allows an aircraft to be tracked through satellite navigation or other sensors. The ABD-S transponder on aircraft transmits a signal containing information such as the plane’s location, which is then picked up by a receiver connected to FlightRadar24. Most aircraft are required by law to have ADS-B equipment, including in the United States and Europe.

INDUSTRY FEATURE LOGISTICS FLIGHT TRACKING

While FlightRadar24 filters some of the data, making it difficult or impossible to track certain private jets, a different site called ADS-B Exchange let users track private planes owned by celebrities and oligarchs: “ADS-B Exchange does not participate in the filtering performed by most other flight tracking websites which do not share data on military or certain private aircraft,” the site says.

MLAT is an acronym for Multilateration, which is used by FlightRadar24 to help locate planes that don’t have ADS-B receivers. MLAT uses a method called Time Difference of Arrival (TDOA) which measures the time it takes to receive the signal from an aircraft with an older transponder in order to determine its location.

FlightRadar24 has additional sources of data, including satellite tracking, which takes data from satellites equipped with ADS-B receivers. These satellites help increase coverage of flights over oceans or where ground-based reception is not possible. The site also receives live data in North America which is based on radar data and from the Open Glider Network (OGN), which is a unified tracking platform for small aircraft.

On the FlightRadar24 site, you can see the world map covered in small plane icons. Each plane is clickable and once you click on it, a popup appears to the left, providing you with information about the flight, including its scheduled and actual takeoff and landing times, where it currently is on its flight route, aircraft information, speed and altitude data, and the data source from which the information was gathered. A majority of the plane icons are yellow, which means the planes were tracked from earthbased radar stations, while the blue ones show planes that were tracked from a satellite.

Ian Petchenik, a spokesman for FlightRadar24, said that the flight tracking website is working on adding more resources, due to “the extreme sustained interest” in tracking Pelosi’s flight. “Today’s (August 2) flight was the most tracked live flight we’ve ever had. Just over 700,000 people tracked the landing of the aircraft in Taipei. The second most tracked live flight was when Alexei Navalny flew back to Russia, from Germany, and that peaked at 550,000,” Petchenik said.

Recently, aircraft have been in the news quite frequently. First, Kylie Jenner faced widespread criticism after it was discovered that she took a 17-minute flight, emitting 1 ton of carbon emissions in doing so.

Following this, the sustainability marketing firm Yard put together a report ranking the celebrities whose private jets have flown the most so far this year, and their corresponding carbon dioxide emissions. At the top of this list was Taylor Swift, whose jet flew 170 times this year so far, and emitted 8,293.54 tonnes of carbon, which is about 1,185 times more than the average person’s total annual emissions.

There are now Twitter accounts that track specific planes with a bot using public ADS-B data. There is @ElonJet, @ CelebJets, @SportJets, @Corporate_Jets, and @RUOligarchJets which were all created by Jack Sweeney, a second-year student at the University of Central Florida.

It seems that more and more people are interested in tracking aircraft, especially those belonging to our favorite celebrities because they are realizing how outrageous some of the flights are—such as Floyd Mayweather’s ten-minute flight to Las Vegas. On

Source: World Bank

Twitter, people have been commenting not only about how these celebrities are unbelievably out of touch with the rest of us, but also about the severe climate damage that incurs with each flight.

We have known for a while that the world’s richest 10% produce half of the global carbon emissions. But climate policies have so far tended to omit this issue of carbon inequality. Worldwide, nations have focused on the decarbonization of production within states, ignoring wild differences in consumption habits. And it’s increasingly looking like the climate crisis can’t be addressed while a small but growing group of super-emitters continue to increase their energy consumption and portray such lifestyles as desirable through their social media channels.

Due to their wealth, these elites also exist outside the market-based

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frameworks implemented to reduce emissions, such as carbon taxes, air passenger duties or carbon allowances for companies. This is also the main issue highlighted by the growing youth movement demanding personal carbon accountability. As Greta Thunberg affirmed early on: “the bigger your carbon footprint, the bigger your moral duty”. And flying, as a very energyintensive activity, has been identified as particularly harmful and socially undesirable.

This has resulted in a major clash between the social and moral norms surrounding air travel. For decades, frequent fliers have been seen as living desirable lifestyles. To be a global traveller automatically infers a high social standing. Celebrities, in particular, have fostered this perspective through their communication of glamorous, globetrotting lifestyles. The 10 celebrities studied in this research, for example, collectively reach out to 170 million followers on Instagram alone.

But more and more people are beginning to question what is desirable, justifiable, and indeed “normal” to consume. In the case of flying, this has come to be known as “flight shame”. In some circles, air travel is beginning to be framed as a destructive human activity. This is a major shift from the dominating production-oriented approach to climate change mitigation. The new focus on consumption challenges every individual to live within a sustainable personal carbon budget — and argues that this can be the most powerful way of forcing policy and industry change.

The implications of the flying habits of global super emitters are therefore far-reaching. It is clear that governments need to follow the public and pay more attention to consumption in order to stem the growing class of very affluent people who contribute very significantly to emissions and encourage everyone else to aspire to such damaging lifestyles.

Calling out the extent of this disparity is key, given that humanity has agreed to stabilize global warming at 2°C. To achieve this goal, emissions of greenhouse gases have to be reduced drastically. The Paris Agreement accepts that the burden should be better shared around: Countries that emit a lot per citizen should make greater contributions to decarbonization.

Stefan Gossling, an environmentalist says, "of course, there will also be disparity within each country: Some high emitters as well as some who hardly contribute to global warming at all. I wanted to find out just how central the highest emitters might be to this question — just how much of the burden we should expect them to take on".

Celebrities, by definition, are influential and often wealthy. While anecdotal evidence suggests that they are also frequent fliers, it has been difficult to determine their contributions to global warming. Very wealthy people are rarely represented in household surveys. To find out, Gossling tracked the jet-set lifestyles of 10 celebrities by analyzing their ample social media presence.

Gossling analyzed Twitter, Facebook, and Instagram accounts for travel information. The vast emissions caused by these individuals suggest that a very small share of humanity has a very significant role in global warming. This is likely equally true for a much wider range of economic, cultural, and political elites.