The Halifax house price index will be released on Wednesday 7 December. House prices fell by -0.4 per cent last month – it was a small dip, but seen as an ominous sign of things to come. Kim Kinnaird, director of Halifax mortgages, says that economic headwinds now point to a “much slower period for house prices” ahead.
Kinnaird argues that the housing market suffered a significant shock from the rate spike that followed the ‘mini’-Budget. This encouraged those with existing mortgages to reconsider their options and some would-be homebuyers to “take a pause”. And with mortgage rates still elevated, another house price dip looks likely this month.
November’s monetary policy report suggested that the Bank of England is troubled by the impact that higher mortgage rates could have on the wider economy. The Bank noted that households would cut back on consumption as monthly payments rose, representing a “downside for growth”. This could be a significant problem: according to OECD data, 28 per cent of UK homes are occupied by an owner with a mortgage.
But we are not alone in our vulnerability to rising rates: 32 per cent of Australian homes belong to owners with a mortgage and the figure is 39 per cent in Canada – many of these are short-term loans, too.
According to UBS analysis, the Australian economy faces a mortgage “cliff edge” next year, as fixed rate home loans start to expire. The Reserve Bank of Australia’s board will meet on 6 December to mull their next interest rate decision. Though Australian CPI remains high (7.2 per cent), analysts expect a gentle 25bps rate hike this month – and for rate cuts to eventually follow in the second half of 2023.
The Bank of Canada (BoC) will also meet to set rates next week. Stephen Brown, senior Canada economist at Capital Economics argues that the BoC is growing increasingly concerned about the downside risk of higher interest rates, meaning that the end of the Bank of Canada’s (BoC) tightening cycle could also be coming into view. Brown argues that a final round of hikes in December and January look likely – taking the Canadian policy rate to a peak of 4.25 per cent.
Eurozone GDP and retail sales figures will also be released next week. Though the economy looks set to fall into recession in Q4, the good news is that ‘hard data’ remains brighter than expected. Interestingly, there is now a significant gap between sentiment and real-world retail sales and production figures. “We think the gap, as it always does, will close again, with the relatively worse sentiment adjusting to the relatively better situation,” says Martin Moryson, chief economist Europe at asset manager DWS.
