Seeking Solace

Steve Saretsky -

In the world’s big financial centers — from New York to Toronto to London to Sydney — rents for city apartments are plunging. As reported by Bloomberg, International students who normally bolster demand are stuck at home and young renters, the most mobile group in real estate, are finding fewer reasons to pay a premium to live in what is, for now, no longer the center of things.

In Manhattan, rental apartment listings have tripled from last year, sending rents tumbling by 11%. Apartment rents are now the cheapest they’ve been since 2013.  In San Francisco, The median monthly rent for a studio has plunged by 31% year-over-year.

Meanwhile, in Downtown Toronto, rents have collapsed by 14.5% , as per recent third quarter data from Urbanation.

The exact same story is playing out in London, Singapore, and Sydney Australia. The once booming cities are suddenly hollowing out. A wave of buyers are fleeing to the suburbs, seeking solace from a global pandemic that continues to rage.

The mass exodus to the suburbs, while easy to understand today, was largely unforeseen back in March. Today, it remains a key factor supporting housing activity.

A recent piece from HSBC Global Research highlights the phenomenon of rising house prices despite one of the sharpest recessions in recent history. Typically in recessions, house prices fall sharply. But this time around, despite record drops in GDP, they have, so far, defied gravity. Based on BIS data, global house prices rose by 4% y-o-y in Q2, at a time when global GDP fell by a record amount.

Housing transaction volumes are rising and prices are being driven higher. This trend is happening almost everywhere – and not just in developed markets. From the UK to Russia, the Philippines to Poland, and the US to Sweden, house prices have continued to rise in recent months, in many cases to record or near-record levels.

Now, what happens if the property market doesn’t cool? If house prices stay elevated, this risks stoking further inequality between home owners and non-home owners.

As we can see, government measures designed to create liquidity and support asset prices have spurred a debt fuelled property boom. With a zero interest rate policy here to stay for the indefinite future, its becoming increasingly difficult to determine what could derail this feverish behaviour nudged on by our central bankers.

Three Things I’m Watching:

1. Manhattan rents are the cheapest they’ve been since 2013.

2. While the second quarter of 2020 saw the sharpest ever drop in global economic activity, one sector stood out against the gloom: housing.

3. Global central bank balance sheets have now topped $28 Trillion.


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The Saretsky Report. December 2022