J.P. Morgan Perspectives

Top 10 themes driving global housing markets in 2024

1. The global housing market is facing a supply/demand imbalance with divergent prospects across regions. Oversupply in China and commercial real estate around the globe contrasts with the lack of supply in the US housing market.
2. Downside risks to prices persist but US mortgage rates have probably peaked and housing prices in many parts of the globe appear to be stabilizing faster than expected. The IMF’s rule of thumb based on cross-country evidence is that every 1%-pt increase in real interest rates slows the pace of house price growth by about 2%-pts.
3. US exceptionalism should continue due to lack of supply with flat home prices projected for 2024. After rising by 5.7% YTD, the US housing market is effectively frozen with the lack of housing supply supporting home prices. Existing borrowers are largely locked-in to their home while renters are locked out. Elsewhere in the Americas, including Canada, Mexico and Brazil, house and real estate prices are stable or actually rising.
4. US housing affordability at its worst in 41 years. Rental demand remains robust given the significant shortage of homes in the US and lack of affordability at current mortgage rates. Renters are locked out as the cost to own would be nearly 60% of median household income. Japan, Italy and Spain are the only G20 developed market countries with ratios of home prices to income below their historical averages.
5. China’s housing market faces a double dip but is the exception in the region along with Hong Kong. It is conceivable that there could be a high-single-digit or even a double-digit decline in China’s real estate FAI next year and likely beyond, while Hong Kong residential prices are down 20% from the peak in 2021. Housing prices are up modestly in Singapore this year, while property prices in Japan have risen by double-digit levels, the first sizeable increases since 1989. India’s residential sector is entering mid-cycle with FY24 marking the third year of what looks to be a typical 8- to 9-year upturn in sales.
6. Australia’s housing market has confounded the skeptics. Home prices have increased by 2.5% in 2023 after suffering a 2.8% decline in 2022. Permanent and long-term migration inflows and vacancy rates at multi-decade lows have supported the housing market.
7. UK housing market is most vulnerable due to shorter-term mortgage structure and resets. With 1.6mn mortgages to be refinanced by 2024 (or ~28% of total owner-occupied mortgages), refinancing from a 2% into a 4.5% mortgage means that an additional 8-10% of household disposable income will be used towards higher mortgage payments, taking the mortgage affordability ratio (mortgage payments as a percentage of take-home pay) up to 40% or more.
8. Commercial Real Estate (CRE) looks overvalued across countries. CRE portfolio stress is concentrated in the office CRE loan books. In the US, office vacancy rates are elevated and are now past GFC levels.
9. There are no signs of systemic banking threats from the housing and property sector. US regional banks followed by smaller second- and third-tier regional players in China with LGFV exposure are most exposed to housing and property risks.
10. Our US Homebuilders and Building products Equity Research team estimate double-digit EPS growth for larger cap builders in 2024 and 2025. Builders have strong balance sheets and have increased focus on lot optioning, reducing risk and improving decision making and return profiles. They are OW PHM and TOL and smaller cap MTH and TMHC.

Will higher for longer break the global housing market?

• Rise in real yields has exacerbated the mounting pressures from the great supply/demand imbalance in global housing markets.
• Global housing market seems to be stabilizing faster than expected although housing prices have declined in 50% of DM and 65% of EM countries.
• Oversupply in China and commercial real estate around the globe contrasts with the lack of supply in the US housing market.
• US exceptionalism is evident with home prices up 5.7% YTD, and flat home prices projected for 2024, reflecting a frozen market.
• Lack of housing supply has been the driving force in higher home prices and existing borrowers are largely locked-in to their homes.
• Renters in the US are locked out as the cost to own would be nearly 60% of median household income.
• US housing affordability is at its worst in 41 years.
• US mortgage rates have probably peaked but will remain near current levels through mid-2024.
• China and UK stand out as facing the greatest challenges.
• China housing faces a double dip while financial risks from the property sector remain high.
• Canada, Australia, Norway and Sweden have the highest shares of floating rate borrowing…
• …but shorter-term structure and resets leave the UK housing market most vulnerable.
• Commercial Real Estate (CRE) looks overvalued across countries, but there are no signs of systemic banking threats.
• US regional banks, followed by smaller second- and third-tier regional players in China with LGFV exposure, are most exposed.
• Our US Homebuilder and Building Products Equity Research team estimates double-digit gains for homebuilders in 2024 and 2025, and are OW PHM and TOL and smaller cap MTH and TMHC.

The great supply/demand imbalance: Divergent prospects across the globe

During the height of the pandemic, housing was one of the most resilient major sectors of the economy with housing prices reaching record levels in many countries, supported by low interest rates, tight inventory and a shortage of property supplies. In 2020, more than 75% of the 60+ countries tracked in the IMF’s Global Real House Price Index saw price increases. At the global level, nominal house prices have increased by 75% since the lows of the Global Financial Crisis (GFC). Cracks became apparent by the end of 2021 starting with China’s property downturn, and red flags began emerging for the Asia housing market more broadly. Macroprudential measures were put into place for China, Australia and New Zealand, and China high yield property market had hit a 20% default rate with Evergrande’s default on $300bn of debt (see J.P. Morgan Perspectives: Red Flags on Asia Housing, Joyce Chang et al., 18 Nov 2021). China’s housing and property pressures intensified in 2022 as property developers faced a cash crunch and more than half of China’s property bonds defaulted. China’s housing market now faces a double-dip as housing demand has peaked and housing is no longer used as a counter-cyclical policy instrument.

The rapid surge in interest rates over the past year has fueled concerns that housing is due for a major correction. Housing is arguably the most interest rate-sensitive sector of the economy and tightening cycles have historically caused a drop in global housing activity and housing prices. Global mortgage rates have reached their highest levels in more than a decade, and the average mortgage rate reached 6.8% in advanced economies in late 2022, more than doubling from the start of the year. In its 2023 Global Risks Report, the World Economic Forum notes that some estimates suggest that the increase in rates amounts to a 35% increase in mortgage payments for homeowners.

In this J.P. Morgan Perspectives, we examine the current global housing trends, including views from 42 analysts across the globe and provide an overview of recent studies from the IMF, OECD and Dallas Fed on global housing cycles. Beyond the global housing market, we also provide J.P. Morgan’s latest views on the outlook for the CRE market.

The US housing market continues to show remarkable resilience but is best characterized by our RMBS team, led by John Sim, as the great freeze (see 2024 Home Price Outlook: The Great Freeze!, John Sim, 10 Nov). In the US, housing prices have appreciated for 11 consecutive years with the nationwide nominal US house price index 132% above its 2012 lows and 69% above the peak reached in 2006. We first explored the question of whether the US housing market might be due for a correction back in 2021 given the dramatic rise in home prices (see J.P. Morgan Perspectives: Is the housing market due for a correction?, Joyce Change et al., 21 Sep 2021). We highlighted that there were structural factors supporting the sector, including low inventory and supportive demographics. We also highlighted why we though comparisons to the housing price run-up before the GFC were overblown as lending standards have improved. The lack of housing supply has been the driving force in the increase in home prices. Supply remains at record lows, and home building is occurring at a pace that is slower than household formations. Supply is also unlikely to come from distressed borrowers with delinquencies remaining low and contained.

Outside of the United States, the global housing market seems to be stabilizing faster than expected, although we find highly divergent trends across regions based on supply/demand dynamics and the structure of the mortgage market. China is struggling to regain confidence in the housing sector and to prevent prices from plummeting due to an excess of new homes, while the US faces a worsening housing shortage. Figure 1 shows responses in housing prices across different markets since the beginning of the tightening cycle. While housing prices have declined in several countries, mainly in Europe and Asia, they have risen in the US and some EM countries. House prices in Australia are actually up 2.5% since the turn of the year after suffering a 2.8% decline in 2022 according to Dallas Fed data. A number of countries, particularly the US, are facing a supply/demand imbalance as moderate investment in this housing cycle resulted in low inventories, while vacancy rates are at very low levels. The US rental vacancy rate of 5.8% at the end of 2022 was significantly below the long-term average of 7.3%, while homeowner vacancy rates are at 0.8%, their lowest level on record in US Census history since 1956. The lack of housing supply is preventing a house price correction. The post-pandemic increase in immigration is also lifting housing demand in a number of countries, such as Canada and Australia.

Figure 1: House prices slowing or reversing, 2022–23

Cumulated percent change

Source: Bank for International Settlements, IMF staff calculations.

Note: Data labels in the figure use International Organization for Standardization (ISO) country codes.

In the Americas, including the US, Canada, Mexico and Brazil, house and real estate prices are stable or actually rising. US exceptionalism is evident as structural imbalances in supply/demand have supported higher home prices. The volume of US housing sales has declined as mortgage rates have risen, but home prices are actually up 5.7% YTD as of September. Favorable demographics, lack of supply and the high level of existing homeowners sitting on lower-rate mortgages point to stable home prices even in a more adverse scenario where interest rates rise further. In the US, the share of variable rate mortgages has declined from over 20% in 2006 to below 5% in 2022, and 30-year mortgages are now the most commonly used. J.P. Morgan’s mortgage analysts estimate that 75% of existing US homeowners have secured interest rates of 4% or lower. We have explored the resilience of the US housing markets in past reports, including a discussion of the differences in the US housing now compared to the 2008 GFC when there was a supply overhang due to excessive building activity. During the GFC, housing prices declined 25% on average from peak to trough (see US housing market headed for a safe landing: Housing affordability a bigger concern than a housing correction, Joyce Chang and John Sim, 28 Apr 2023, and More downside for housing, but normalcy, not a major housing correction, lies ahead, Joyce Chang, 24 Oct 2022).

International housing markets are under greater pressure, and European housing markets have higher shares of floating rate borrowing, with the United Kingdom standing out. The housing market in the United Kingdom is one of the most vulnerable housing markets as the shorter-term structure of fixed-rate mortgages that reset should keep home prices under pressure, while the affordability crisis should deepen. Scandinavian countries have the highest share of floating rate borrowing. However, the proportion of equity in home ownership as well as the average maturity of mortgages varies widely in Europe. Italy and Germany are less vulnerable in that respect compared to Sweden, the UK and Spain.

Figure 2: Home ownership by mortgage status

% of households

Source: Eurostat, OECD, J.P. Morgan Asset Management. Data as of 31 January 2022.

In Asia, China’s housing market is facing a double-dip, but the red flags that we highlighted in other parts of Asia have yet to materialize. The core challenge in China’s property market is low confidence on home price expectations from both homebuilders and homebuyers and the outlook for income and employment, while credit conditions should keep default rates high. Policymakers have protected housing prices with administrative measures to prevent a balance sheet recession and home prices in Tier 1 and 2 cities could remain flat or see low-single-digit increases over the next year, although home prices likely will remain under pressure in lower-tier cities. However, elsewhere in Asia, property prices and mortgage and housing credit are experiencing a more stable performance than anticipated a year ago. In Japan, buoyed by the economic expansion, housing prices are rising for the first time since 1989. Despite fears of overheating, Australia housing prices are still on the rise. India is mid-cycle with normalization unlikely until 2026 and remains an outlier compared to the mature property markets in Asia. Inventory is low and FY24 pre-sales growth remains strong at 20-25%.

The great housing affordability crisis that won’t go away

As housing markets have proven more resilient than expected, the housing affordability crisis has broadened globally and become more dire. Housing affordability is at its lowest level since the GFC and housing transactions have fallen sharply across the globe as rates have risen. In the US, annual 30-year mortgage costs for new homes doubled to 50% of household median income, while European mortgage rates tripled on average according to J.P. Morgan Asset Management. Figure 3 shows that house price to disposable income ratios, a measure of consumer housing affordability, are running at historically high levels in advanced economies. Japan, Italy and Spain are the only G20 developed market countries with ratios below their historical averages.

Figure 3: Ratio of house prices to personal disposable income

Ratio of nominal price indices rebased to 100 in 2005

Source: Federal Reserve Bank of Dallas, J.P. Morgan Asset Management. Data as of 31 January 2023.

Figure 4 shows that affordability crises often accompany housing booms. Home sales are down dramatically across the globe even as prices have not dropped as much as anticipated.

Figure 4: Housing affordability deterioration especially notable during the pandemic

Index, 1975 = 100

Notes: Last data point is third quarter 2022. Shaded areas represent housing affordability deterioration in international housing markets, excluding the US. The pandemic economic impact began in first quarter 2020.
Source: Dallas Fed's International House Price Database, authors' calculations.

The IMF finds that housing prices remain stretched while affordability continues to deteriorate even as house prices fell in 65% of emerging markets (on average by 0.7% yoy) in Q3 2022 and prices decreased in nearly 55% of advanced economies (Figure 5).

Figure 5: Real house price growth

Distribution of year-over-year changes, 2022:Q3

Source: Bank for International Settlements, Bloomberg Finance L.P., Haver Analytics, and IMF staff calculations.

Figure 6: Global housing affordability and supply conditions

Index, 2015 = 100

Source: Bank for International Settlements, Bloomberg Finance L.P., Haver Analytics, and IMF staff calculations.

In Europe, an IMF study found that rental housing has become much less affordable across many European economies. In their 2021 survey of 17 advanced European economies, a typical renter household spent about 25% of income on rent in 2018, while a young family paid nearly one-third of their earnings on renting. For a household in the lowest 20% of the income distribution, the share of income needed for rent was much higher at 40%. The IMF considers 40% as the threshold for a household to be considered overburdened by rent payments. In nearly three quarters of the countries analyzed, about half or more low-income renters were overburdened in 2018. The affordability gap between a renter and homeowner has widened. A renter typically spends over one and a half times what a homeowner spends on housing when measured as a share of disposable income.

Figure 7: The affordability gap between renters and homeowners with mortgages has widened over the past decade

Change in housing cost across income groups, percent of disposable income

Source: EU-SILC and IMF staff calculations.
Note: Change between 2011-2013 (average) and 2016-18 (average).

In the United States, the Atlanta Fed’s Housing Affordability Monitor (HOAM), which compares median home prices and other housing costs with median household income, shows that housing affordability is worse today than during the peak of the 2008 housing bubble. HOAM uses Housing and Urban Development (HUD) standard 30% share of income threshold to measure affordability and this tool presents a national view of affordability for the median home owner from January 2006 through the most current data as well as metro-level and county-level (within metropolitan areas) views of affordability for the median home owner from January 2014 through the most current data.

Figure 8: Federal Reserve Bank of Atlanta National Home Ownership Affordability Monitor (HOAM) Index

Data through August 2023

Source: Atlanta Fed.

Similarly, J.P. Morgan SPG research team’s housing affordability index shows that after the strong HPA move over the last 12 months, headline affordability is showing that the market is at 40% cost-to-income, the worst in 41 years (Figure 9).

Figure 9: Traditional affordability is the worst in 41 years

Monthly housing cost to income ratio (%)

Source: J.P. Morgan, Case-Shiller, CoStar, Optimal Blue, Bloomberg Finance L.P.
Note: Assumes an 80 LTV loan for a median priced house which as of Sep’23 is $375k. It includes average property taxes. We use the Freddie rate from 1984-2019, and Optimal Blue’s conforming rate from 2020 onwards.

At current rates, the Composite and First-Time Buyer Affordability indices are down 16% and 12% yoy, respectively, 38% and 28% below their 1995-2004 averages as well as at nearly 30-year lows. While the cost to own an existing home versus renting is currently at a 31% premium compared to a long-term average of 8%, the cost to own a new home versus renting is only at a 36% premium, which is modestly above the long-term average of 29% (Figure 10). The spread between the 30-year fixed mortgage and the 10-year Treasury remains at nearly 300bps versus a long-term average of 170 bps. As the economy moderates, a decline in mortgage rates of at least 100bps is plausible over the next 12 months, which would improve affordability (Figure 11).

Figure 10: Housing Affordability Composite and First-Time Home Buyer Indices, 1Q95-Present

Source: National Association of Realtors, J.P. Morgan estimates. Notes: Our current mortgage rate estimate is based on the most recently published FHFA data plus the change in the mortgage rates from Bankrate.com.

Figure 11: 30-Year Mortgage Rate, 10-Year Treasury Yield and Spread, 1985-Present

Source: Bloomberg Finance L.P.

Our RMBS analysts look at how much home prices would need to decline if the market was resistant to affordability ratios higher than 35%. Note, in the past the affordability ratio has reached 30% but clearly the market is willing to absorb higher levels as the current affordability ratio for September is 38%. From current levels, home prices need to decline by 3% to stay at 35% affordability levels with income growth at 4% and mortgage rates at 7% (Figure 12). This would take away from the 5.7% growth we have seen to date in 2023 as of September.

Figure 12: Mirror, Mirror on the wall, which affordability level rules them all?

Implied change in home prices that results in a 35% housing cost-to-income ratio at various mortgage rate and wage growth assumptions

Note: Using median home price of $387k, median income of $78k and 1.2% taxes. CoreLogic currently shows YTD HPA of +4.8% to Jun ’23.
Source: J.P. Morgan, CoreLogic.

Our US equity strategists also examined the impact of higher mortgage payments on US consumer spending for those holding a mortgage without a fixed rate. While only 5% of mortgages are variable rate, our US equity strategists estimate that ~5% of homeowners annually readjusting mortgages to higher rates would be an incremental ~$25bn annual headwind for US households. Assuming 5% of $12.3trn of current housing debt is rolled into higher ~8% mortgage rate over the next year (+430bp delta vs effective rate), this would be an incremental ~$25bn annual headwind for US households, or ~$75bn over the next two years (see US Equity Strategy: The Cost of Even Higher for Longer and Tightening Liquidity, Dubravko Lakos-Bujas et al., Oct 30). For consumers who cited expectations for monthly mortgage payments to soon be rising, 71% of respondents to the US Cost of Living survey conducted in September 2023 cited a need to cut back on overall spending to afford their mortgage/rent with interest rates on average at 7.6% today (vs. 3.9% in 2019). The top three areas where consumers intend to cut back the most are socializing/eating out, clothing, and home furnishings and accessories (see Cost of living pressures reaching an inflection point? Lower-income households feeling the pain while European consumers are more pessimistic than US, Joyce Chang et al., 12 Oct).

Figure 13: Effective and Spot Mortgage Rates

Since 1977

Source: J.P. Morgan Equity Macro Research, Bloomberg Finance L.P.

Supply in all the wrong places: The looming Commercial Real Estate crisis

We find the global housing dynamics at the household level to be more manageable than the structural challenges facing Commercial Real Estate (CRE). The US regional banking downturn has put the spotlight on oversupply in the CRE market. Based on Federal Reserve data, total system CRE loans amounted to $5.77trn as of Q2 2023, 63% of which were non-residential with the remaining backed by multifamily properties. In the United States, the office market is most vulnerable with office vacancy and availability rates now past GFC highs. Delinquency rates are moving higher with more than $1trn of loans scheduled to mature by 2025. Our CRE and global credit team, Steve Dulake, Chong Sin and Kabir Caprihan, expect CRE portfolio stress to arise in office CRE loan books. Applying an 8.6% stressed loss rate to bank office CRE exposure, they project $38bn of cumulative losses for the sector over a three-year period. This seems manageable from a capital burn standpoint, but potentially underappreciated given the implications for small and medium-sized US banks. As a percentage of CET1 capital, CRE exposure excluding multifamily, farm, and owner-occupied properties is concentrated at small regional banks versus GSIBs.

Beyond the US, the IMF finds CRE markets significantly overvalued across countries. The IMF measures CRE misalignment as the deviation of the net-operating-income-to-property-price ratio from an estimated trend sharp price correction, with the largest misalignments in the residential and industrial segments (Figure 14). Another source of vulnerability stems from the financial (or balance sheet) health of lenders in the CRE market. In addition, many nonbank lenders, which are typically funded by warehouse lines from money center banks, have also curtailed their activity in anticipation of weaker property markets and a more challenging lending environment.

Figure 14: Commercial Real Estate overvaluation across countries

Percent, latest

Source: Bloomberg Finance L.P., Commercial Mortgage Alert, European Banking Authority Risk Dashboard, Fitch Ratings, Green Street Advisors, MSCI Real Estate, Trepp, US Federal Reserve, and IMF staff calculations.

In Europe, the stock of CRE loans also represents a large share of total bank lending to nonfinancial corporations, with shares standing at about 30% in aggregate and above 49% in Sweden, Denmark, and Norway (Figure 15). Our credit analysts highlight the magnitude of CRE/construction exposure held across Europe, particularly in Scandinavian countries.

Figure 15: CRE/construction exposure as % corporate lending

Source: EBA Risk Dashboard June’23.

The level of non-performing loans (NPLs) has been rising. While the EU/EEA average for NPLs for CRE stands at 1.8% and 5.5% for construction lending, NPLs are considerably higher for peripheral European countries.

Figure 16: NPLs as % CRE/construction lending

Source: EBA Risk Dashboard June’23.

Our credit analysts find the US regional banks, followed by second- and third-tier regional players in China with LGFV exposure, as most vulnerable heading into 2024, but see little risk of systemic banking issues.

I. Survey of official creditor research on global housing cycles

Dallas Federal Reserve: The global boom in housing prices dates back to the 1970s

The global housing boom dates back to the 1970s although it is frequently framed in the context of the pandemic. The Dallas Fed has conducted some of the most comprehensive work examining the historical evolution of US and global housing prices, adjusted for inflation. The Dallas Fed maintains an International House Price Database, which dates back to 1975, and includes historical sources for the US and a subset of 17 of the 24 countries that it monitors to construct consistent annual measures of US and global (excluding US) real house prices dating back to the Franco-Prussian War of 1870. Using statistical tools to identify exuberance, the Dallas Fed finds that booms have become longer and more concordant since the 1990s.

Figure 17: Pandemic boom spreads widely across global housing markets

Notes: Last data point is third quarter 2022. Periods of exuberance are plotted whenever a house price run-up or deterioration in real estate affordability is identified. Color of country labels on vertical axis indicates the exuberance status as of third quarter 2022.

Source: Dallas Fed's International House Price Database, International Housing Observatory, authors' calculations.

The Dallas Fed finds that mortgage rate changes can help predict house price movements, based on quarterly data covering 384 US metropolitan areas from first quarter 1975 to second quarter 2023. For every 1%-pt increase in 30-year fixed-rate mortgage rates, a -1.6% adjustment in house prices on average is expected in the following year. The Dallas Fed notes that house price sensitivity to mortgage rates has likely risen for a couple of reasons. First, the 2000s housing bubble, along with a sharp decline in mortgage rates, produced a period of elevated house-price sensitivity. Secondly, a long-term increase in the investor share of home purchases may have further contributed to the increased sensitivity of housing demand to changes in mortgage rates.

Figure 18: Gradual house price decline expected after a 1%-pt rise in 30-year mortgage rates

%

Notes: Chart shows response of house prices to a 100-basis-point increase (1 percentage point) in 30-year mortgage rates. The solid line is the mean group response across 384 U.S. metropolitan areas estimated from first quarter 1975 to second quarter 2023. Dashed lines represent 99% confidence interval.
Source: Federal Reserve Bank of Dallas.

OECD: European housing prices on the retreat

While US housing prices are up 5.7% YTD as of September, two-thirds of economies for which the OECD tracks housing prices saw declines in 1Q23, the most recent quarter of available data (Figure 19).

Figure 19: Two-thirds of the economies that the OECD tracks saw declines in housing prices in 1Q23

Housing price changes in 1Q23 (relative to 4Q22)

Note: 31 of the 46 economies included in the OECD dataset are displayed in the chart. Housing prices rose in the other 15 economies.
Source: Organization for Economic Cooperation and Development.

As monetary policy takes effect, home price declines have reached double-digit levels in Australia, Sweden and New Zealand (Figure 20). The IMF’s rule of thumb based on cross-country evidence is that every 1%-pt increase in real interest rates slows the pace of house price growth by about 2%-pts.

Figure 20: House prices have begun to decline as monetary policy takes effect

Percent change in nominal house prices since most recent peak

Source: CoreLogic, Europace, Federal Housing Finance Agency, Nationwide, Real Estate Norway, Reinz, Statistics Denmark, Statistics Korea, Statistics Netherlands, Teranet-National Bank House Price Index, Valueguard and OECD calculations.

The OECD finds that Canada, Australia, Norway and Sweden appear most vulnerable out of a group of 38 mostly advanced economies given their high share of borrowing at floating rates.

Figure 21: Housing market risk indicators

Economies with high household debt and more floating-rate loans have greater exposure to higher mortgage payments, with heightened risk of defaults

Note: Criteria 1 = households’ outstanding debt as a percentage of gross disposable income, 2022: Q2; Criteria 2 = share of debt outstanding at variable interest rate (fixed rate up to one year), 2022:Q3; Criteria 3 = share of households owning home with a mortgage, 2020; Criteria 4 = cumulative real house price growth, 2020:Q1-22;Q1; Criteria 5 = cumulative policy rate changes, 2022: Q1-22:Q3. For each criteria, countries obtain a score between 0 and 4 reflecting their position in the cross-country distribution. The total score is the sum of the individual criteria scores.
Source: BIS, ECB, Hypostat, OECD, and IMF staff calculations.

IMF: Stress testing house prices at risk

Looking at house-prices-at-risk, defined as the growth at the 5^th percentile of the house price distribution, the IMF sees a 5% chance that the housing price decline over the next three years could be about 7% in advanced economies and 19% for emerging markets. If financial conditions were to tighten to an extent half as severe as during the GFC, the declines could be 3%-pts higher, especially in emerging market economies.

Figure 22: Advanced economies: House-prices-at-risk model

Probability density; house-price-at-risk three years ahead

Source: Bank for International Settlements, Bloomberg Finance L.P., Haver Analytics, and IMF staff calculations.

The IMF estimates that a real home price correction is associated with material declines in real consumption across countries, especially ones with low savings.

Figure 23: Effect of house price declines on consumption

Effect of a 1% decline in real house price growth on one-period-ahead private consumption growth in percentage points

Source: Bank for International Settlements, Bloomberg Finance L.P., Federal Reserve Bank, Haver Analytics, IMF Financial Soundness Indicators, and IMF staff calculations.

II. Americas: The great housing correction that wasn’t

US housing market: The great freeze!

Mortgage and housing credit has experienced a much softer landing than thought possible 12 months ago. J.P. Morgan’s RMBS analysts now project a 5% increase in 2023 home prices and flat prices in 2024. John Sim, Head of Securitized Products Group Research, notes that home prices are now up 2.5% from the peak in 2022, and up 5.7% YTD. The lack of supply—either because of under-building or existing homeowners sitting on lower-rate mortgages—has led to a much better home price outcome than thought possible. The CoreLogic Home Price Index (HPI) was up 4.7% yoy in September, marking the eighth consecutive month of positive m/m Home Price Appreciation (HPA). Our analysts see flat home price appreciation in 2024 from a frozen market. Their base case view is a soft landing with no recession, where unemployment rises to 4.5% (4Q24), and inflation moderates enough to allow central banks to begin easing through 2H24. In this scenario, J.P. Morgan’s rates colleagues have the 10-year mortgage rate holding at 4.2% by mid-year 2024. By this metric, mortgage rates have probably peaked. This should keep some pressure on affordability and do very little to create demand or supply. We think mortgage rates need to be 200-300bp lower to generate meaningful demand, which seems unlikely to happen.

Figure 24: Home prices are expected to be flat in 2024

Source: J.P. Morgan.

Note: 2023-25 HPA is YoY % change of Q4 HPI. YTD a/o Sep ‘23.

Homebuilders continue to add supply, but only at a slow and controlled pace. Single- and multi-family housing completions are averaging about 1.4-1.5 million this year versus household formation at roughly 1.8 million. This means we are still building at a pace that is slower than household formations.

Figure 25: Supply remains well below the levels of previous years

Annual rates of existing homes available for sale (mn, nsa)

Source: J.P. Morgan, NAR.

Limited supply has been the stalwart of home price growth this year. As affordability continues to be challenged, we would expect to see existing home sales (demand) decline if mortgage rates remain high. That said, the supply picture isn’t likely to change for several years as there has been a systematic underbuilding of homes. Since 2015, there are 3.6mn more households than housing units (Figure 26). Household formation has remained strong so far this year, averaging 1.9 million in 1H23 following 1.6 million and 2.0 million in 2021 and 2022, respectively, well above its long-term average of 1.2 million. The lack of supply relative to demand continues to suggest modest home price growth. Builders need to start overbuilding to correct for this, but current construction costs remain high, and builders need to offer rate buydowns and other concessions to make current inventory affordable. It’s hard to overbuild when affordability is so low. This means that sub-5% growth is likely to persist for several years until inventory normalizes with demand. Our homebuilder equity analysts expect housing starts to remain on pace in 2024.

Figure 26: Years of underbuilding (since 2015) resulted in a gap of 3.6 million housing units

Net household formations, homeowner household formations and housing completions (mm, net vs 2015). MF = multi-family. SF = single-family.

Source: J.P. Morgan, U.S. Census.

Existing borrowers are largely locked into their homes while renters are locked out. Existing homeowners have an average mortgage rate that is 3.5%-pts lower than the current market mortgage rate (Figure 27). It is of little surprise then that monthly existing home sales YTD have been well below previous years (Figure 28).

Figure 27: Existing borrowers are largely locked into their homes

Average rate of outstanding mortgage borrowers vs. the current 30yr conforming mortgage rate (%)

Source: J.P. Morgan, Black Knight, Optimal Blue.

Figure 28: Existing home sales remain well below that of previous years

Monthly existing home sales (mn, nsa)

Source: J.P. Morgan, CoreLogic.

The US has experienced only two major nominal house price declines in the past 50 years. Both periods occurred after the price to personal disposable income indicator shot above 1.0. In both cases, significant monetary tightening and a sharp rise in unemployment were required to cool house price exuberance. In Q3 2022, this indicator stood at 1.06—a historical high.

Figure 29: US house price index vs house price to personal disposable income ratio*

% change year on year (LHS); ratio (RHS)

Source: Federal Reserve Bank of Dallas, J.P. Morgan Asset Management. Periods of “recession” are defined using US National Bureau of Economic Research (NBER) business cycle dates. * House price index and personal disposable income index are rebased to 100 in 2005. Personal disposable income reported in per capita terms. Data as of 31 January 2023.

While J.P. Morgan’s base case is flat home prices in a soft landing scenario, alternate economic scenarios leading to a recession in 2024 or a deeper recession in 2025 could pressure US home prices down -10% to ‑20%. If the potential recession scenarios that our economists lay out were to materialize, there would be considerably more downward pressure on home prices (Figure 30). The downward pressure is expected to come from a combination of increased supply from higher delinquencies and a reduction in demand from a weakened consumer, slow growth and mortgage rates remaining historically high. Broadly, home prices are expected to range from flat to -10% in 2024 and from +3% to -15% in 2025.

Figure 30: Alternative economic scenarios equate to more downside risk

YoY HPA (%) projection under different economic scenarios

Source: J.P. Morgan.

Michael Rehaut, Head of Homebuilders and Building Products Equity Research, expects single-family housing starts to improve moderately in 2024 from current levels. He expects single-family housing starts to be up roughly 5% to 1,020K in 2024, driven by a combination of coincident indicators that are mixed. Leading indicators lean positive on a net basis led by strong household formation and existing home inventory remaining near record-low levels. Single-family existing home inventory is currently at 980K, down 16% yoy, and remains near record lows as well as roughly 40% below prior trough levels in 1994 and 2000 (see Housing Forecast: SF Housing Starts Should Continue to Stabilize Near Current Levels in 2023 and Improve Modestly in 2024, Michael Rehaut, CFA, 13 Sep).

Figure 31: Single-Family and Multi-Family Housing Starts, 1960-2024E

Thousands; Recessions Shaded

Source: US Census Bureau, NBER, J.P. Morgan.

Existing home supply tightness of recent years is in part due to structural changes, which have continued to support the housing market going forward. Single-family existing homes for sale have been declining nearly every year over the past 15 years (i.e., since 2007). The declines can be attributed in part to large institutional investors entering the single-family home rental market, which began amid the fallout from the great financial crisis but continued during the decade that followed. This is estimated to have taken roughly 400K homes permanently out of the available supply of single-family existing homes. According to Redfin, investor purchases represented 16% of total home sales in 2Q23, down from a briefly reached high of 20% in 1Q22, but in-line with a long-term trendline of increasing market share dating back to 2000, when investors accounted for 6-8% of the market (during 2010-2019, the share increased from roughly 9% to 15%) (see Homebuilding: Looking to 2024, Deja Vu from 2H22? We Remain Positive and Establish 12/24 Price Targets, Michael Rehaut, CFA, 11 Oct).

John Sim points out that the housing markets are highly localized across the US, with disparity in housing supply and prices across regions. Areas in the Sun Belt are seeing some recovery and areas in the East are finally seeing a substantial increase in months of supply, but supply is still incredibly tight and not close to returning to pre-pandemic levels. HPA continued to slow across a majority of the 50 largest MSAs during August. This is in sharp contrast to a year ago. Home purchase applications are the lowest since 1995 while homeowner vacancy rates are at 0.8%, their lowest level on record in US Census history since 1956.

Figure 32: Home Vacancy Rate

%

Source: Census Bureau, J.P. Morgan.

Housing demand has dwindled to baseline turnover rates, which currently stand at a sub-5% annual pace. One way to see this, beyond existing home sales, is to look at the prepayment rate for the entire mortgage market, which has declined to baseline turnover rates (Figure 33).

Figure 33: Less than 5% of the single-family housing market is turning over

1M CPR (%) for all mortgages, which covers 70% of the universe (e.g. loans on bank balance sheet, serviced loans, GSEs and PLS)

Source: J.P. Morgan, Black Knight.

Michael Rehaut and team project double-digit EPS growth on average for the larger-caps in 2024 and 2025, and view valuations as fairly inexpensive. The builders’ increased focus on lot optioning, strong balance sheets and returns have reduced risk as well as improved decision making and return profiles versus prior cycles, which in turn should support higher valuations over time. Currently, valuations are fairly inexpensive. The homebuilder universe trades at 7.5x and 6.4x their 2023E and 2024E EPS, respectively (ex-NVR; larger-caps: 7.2x and 6.3x), as well as only 1.2x and 1.0x their 2023E-end and 2024E-end book values (ex-NVR; larger-caps: 1.5x and 1.2x). As such, their December 2024 price targets, in which they use an average target forward multiple of 7.3x against 2025E EPS, represent an average upside potential of 27% from current levels. They are OW PHM and TOL and smaller cap MTH and TMHC.

Anthony Paolone, Co-Head of US Real Estate Equity Research, observes that demand for homes has declined as 75% of existing homeowners have secured interest rates of 4% or lower. Existing homeowners are experiencing the “rate lock-in effect”, disincentivized to increase household mortgage payments at higher rates and are now likely to remain in their existing home. Existing home sales have declined substantially, almost to levels see during the GFC. In its October 2023 Outlook, the National Association of Realtors (NAR) expects existing single-family home sales to total about 4.2 million in 2023 (down 17.5% yoy), followed by 4.7 million in 2024 (up 13.5%). He sees a more “normal” level of existing home sales in 2025/2026 where they should land well into the 5+ million range. He expects home prices will finish 2023 flattish yoy (perhaps up about 1%), followed by better pricing in 2024 (up about 4%). As he has long argued, the upshot to the for-sale housing market is that demographics are favorable (Millennials, Sunbelt migration), existing housing stock in the US remains very tight (irrespective of single family or multifamily, for-sale or for-rent), and pent-up demand to buy homes is building.

Demographics are supportive of greater housing demand over the next five years. US Census Bureau data confirms a rise in homeownership among those aged 18-34, while the percentage of those aged 18-34 living with parents is leveling off. He expects the influx of first-time homebuyers from Millennial household formation to provide a major tailwind to housing demand. 2022 saw the highest level of household formations in ten years. The Council on Foreign Relations reports that the gap between single-family housing starts and household formations grew by one million over the course of 2022, reaching an enormous 6.5 million at the end of that year.

Figure 34: Ratio of housing starts to population

Notes: This figure depicts the number of new privately-owned, single-family home housing starts, a measure of residential construction projects, divided by the U.S. population over time as a three-month moving average. Source: FRED, authors’ calculations.

The millennial generation makes up ~25% of the US population, and the number of people turning 30 years old will average 4mn, or 18% higher than the 1998-2005 period. COVID-19 reinforced housing demand as this generation is placing greater value on incremental space and prioritizing elements of the home against proximity to city centers and jobs.

Figure 35: The demographics are supportive of greater housing demand

Annual number of U.S. births, 1946 – 2020 (in thousands)

Source: U.S. Center for Disease Control and Prevention.

US rental market: Reaching a peak but should remain resilient in 2024

Rental demand has held up given the significant shortage of homes in the US and lack of affordability at current mortgage rates. Renters are locked out, and our RMBS analysts find that at a 7.5% mortgage rate only 23% of renters are potential home buyers. To get a more nuanced picture of affordability, the RMBS team breaks out homeowner and renter income and contrasts that with the cost of buying versus renting. Figure 36 shows that their cost-to-own would be nearly 60% of their median household income, which is simply unaffordable.

Figure 36: Existing homeowners are on solid footing, while renters are locked out of the market

Renter / homeowner cost-to-own vs. cost-to-rent

Source: J.P. Morgan, Case-Shiller, CoStar, Optimal Blue, Bloomberg Finance L.P.

Renters are classified by income level in Figure 37. Class A renters represent about 25-30% of the renter population (~11mn to 13mn households) and are the only class of renters who have been able to afford to buy. While Class A renters, if willing, could purchase homes, purchasing a median priced home is out of reach for Class B renters at nearly 39% debt to income. At a 4% mortgage rate, half of class B renters, who earn $50-75k, could theoretically buy. Class C renters are effectively locked out of homeownership and are at their limits of rent affordability.

Figure 37: Shares of total renter population by income level

Income distribution for homeowners and renters

Source: J.P. Morgan, U.S. Census.

Rent continues to moderate in the largest MSA and at the national level (Figure 38), and rent growth can moderate further in the shorter run due to supply pressures but will likely remain durable over the longer run. It is still more affordable to rent than to buy in 98% of the 381 housing markets tracked by our CMBS team (Figure 39). J.P. Morgan’s CMBS analyst, Chong Sin, has recently revised down multifamily rent growth to +2-3% from the prior forecast of +3-5% as multifamily rent growth continued to decelerate with year-over-year national effective rent growth at 1% (Figure 40) (see CMBS Weekly: Revising down our 2023 multifamily rent forecast and what’s up with CRE CLO mods?, Chong Sin, 25 Aug). Preliminary Q3 data suggests further moderation in rent growth for 2023 with risk of +0-1% growth for the year as demand continues to moderate against elevated supply deliveries.

Figure 38: Rent continues to moderate in the largest MSAs and at the national level

YoY rent growth %

Source: J.P. Morgan, CoStar.

Figure 39: Renting is still more affordable than buying in the vast majority of MSAs

Percentage of MSAs where buying is cheaper than renting

Source: J.P. Morgan, CoreLogic, CoStar.

Figure 40: Full-year 2023 multifamily rent growth projection revised down to +2-3% from prior forecast of +3-5%

National multifamily effective rent/unit growth by quarter versus prior year-end levels (%) and J.P. Morgan’s estimate for 2023 year-end, as of Q2 2023

Source: Costar, J.P. Morgan.

Figure 41: Housing affordability is particularly stretched for renters. Homeowner DTI has been increasing and is now equal to Rent Cost to Income

Renter potential DTI is the ratio of current monthly housing cost and monthly income of a rental household. Rent Cost to Income is monthly rent over monthly income of a rental household. Homeowner DTI is the ratio of current monthly housing cost and monthly income of a homeowner household

Source: J.P. Morgan, CoreLogic, CoStar.

The CMBS team notes that Class A rent growth has decelerated faster than the Class B and C segments and is now in negative territory on a year-over-year basis and should continue to underperform Class B or C. The CMBS team has argued for some time that Class A rents have exhibited more volatility than lower tiers as Class A renters are more mobile (both in their ability to move with their jobs, rent shop, or purchase homes).

Figure 42: Multifamily rent growth continued to slow and Class A rent growth in negative territory yoy

National multifamily year-over-year effective rent growth by property quality tier, as of Q2

Source: Costar, J.P. Morgan.

In 2024, there is risk rent growth can go into negative territory (Figure 43) if net demand settles to the more normalized patterns of 2018/19. This is not the base case view (yet) as home purchase affordability continues to be stretched on the back of rising mortgage rates. Next year, our analysts see more supply deliveries based on the 1mn+ units that are currently under construction.

Figure 43: Is the multifamily market headed for a state of disequilibrium in 2024? There is risk of negative rent growth in 2024

National multifamily quarterly construction deliveries versus absorption (000s units) and Q3 2023 to Q4 2024 estimates, as of Q2 2023

Source: Costar J.P. Morgan.

Figure 44: The multifamily rental market has been in a state of equilibrium since 2014/15

National multifamily quarterly net demand (absorptions less construction deliveries in 000s units) versus quarterly effective rent growth, as of Q2 2023

Rent inflation is declining

Rent inflation continues to run well above most other CPI components but there are signs of softening in recent months. The surge in house prices and rents was a force boosting PCE service price inflation in recent years. With housing services comprising nearly one-third of overall CPI and about 15% of PCE prices, the impact was material (see There’s no place like home: House price surge continues, Joseph Lupton, 13 Sep 2021). In general, a 10% rise in house prices in the US corresponds to a more modest 2% rise in housing service costs.

We expect a further gradual decline in rental inflation will continue to exert disinflationary pressure through the first half of next year before stabilizing just under a 3% saar pace. The Zillow Observed Rent Index, which tends to lead fluctuations in CPI rent measures by about 12 months, rose 3.2% oya as of October, down from a peak of 17% oya in February 2022 (Figure 45). As expected, the CPI rent measures have also begun to reflect this softening, with OER CPI inflation coming in at 6.8% oya as of October, down from above 8% in the early spring, and the 3-month run rate has fallen to 5.5% saar. We expect further cooling in the months ahead as industry data on asking rents is slowly reflected in the official measures.

Figure 45: A further gradual decline in rental inflation should exert disinflationary pressure through the first half of next year

Zillow Observed Rent Index and ApartmentList Rent Index compared to Primary rent and OER CPI; % oya

Source: Zillow, ApartmentList, BLS.

Canada: Structural housing undersupply

While Canada is among the countries that rank highest among economies with high household debt and floating rate mortgages, our Canada economist, Silvana Dimino, notes that there has been a surprising rebound in housing market activity. The negative effects of tighter monetary policy over the past year have been apparent in the resales market (Figure 46) as demand was weighed down by higher mortgage rates and reduced affordability. Existing home sales have increased in every month from February to October and are running at the highest monthly rate since May 2022. Meanwhile, housing starts have reversed their downward trend. Housing starts increased 3.9% m/m in September. The trend in groundbreakings is well below the highs achieved in 2021 and 2H2022.

Figure 46: Higher mortgage rates and reduced affordability weighed on demand

6-month moving average, thousand units, saar, both scales

Source: CREA, CMHC, J.P. Morgan.

There continues to be a structural imbalance in the existing home market. Overall existing home inventories are still historically low and are once again falling (Figure 47). The downtrend in housing starts and permits is also a concern. With the record-breaking immigration levels planned for 2023 to 2025, housing under-supply should continue to be a challenge. The pressures on housing supply suggest rent growth is likely to remain sticky in the CPI.

Figure 47: Existing home inventories are still historically low

Months of inventory, sa

Source: CREA, J.P. Morgan.

Brazil: Stable housing market so far

Our Brazil economists, Vinicius Moreira and Cassiana Fernandez, and our Head of Brazil Homebuilders, Marcelo Motta, find that the housing market appears stable at this point in the cycle. However, there has been a worsening in credit conditions and increasing evidence that higher rates are impacting different parts of the domestic economy (see Brazil: A Closer look into the housing market, Vinicius Moreira and Cassiana Fernandez, 23 Oct). Fipe Zap released its monthly data regarding housing prices monitored in 50 cities in Brazil. During October, prices were up 0.54% MoM compared with expected inflation for the period (IPCA) of 0.21% MoM and IGP-M +0.50%. On an YTD basis, home prices increased 4.43% vs IPCA +3.72% and IGP-M at negative 4.46% (see Latam Real Estate: Today’s News, Marcelo Motta et al., Nov 3).

Sales and starts in the city of São Paulo have decelerated since the peak in 2Q but remain historically elevated (Figure 48). Although the production of inputs and sales of building materials at the national level have decelerated more substantially after a boom in the end of 2020 and 2021, the 2Q GDP revealed some recovery in construction after two weak quarters. Real estate services continue to grow at a solid pace (Figure 49).

Figure 48: Housing sales in São Paulo

Total, sa, 3-month average

Source: Secovi-SP, J.P. Morgan.

Figure 49: Construction and real estate services GDP

Index, sa, 4Q18=100

Source: IBGE, J.P. Morgan.

However, mortgage rates have jumped more than what the historical relationship with the policy rate would suggest at the same time non-performing loans are rising but remain contained (Figure 50 and Figure 51). As a result, new mortgages have been falling since the beginning of the year, which may suggest some deceleration in sales and starts ahead.

Figure 50: Banks’ mortgage rate and policy rate

%p.a., both scales

Source: BCB, Bloomberg Finance L.P., J.P. Morgan.

Figure 51: Nonperforming loans (NPL) on mortgage

%

Source: BCB.

Mexico: Industrial real estate reaping the benefits of nearshoring

In Mexico, mortgage rates have been as high as 8-11% for many years, so the change in rates has very minimal impact on home prices.

Figure 52: Mexico – New Bank Mortgages picking up but INFONAVIT (Social Housing) lagging

L3M y/y

Source: CONAVI.

The demand for industrial real estate in response to supply chain relocation is the bigger story, according to our Chief Economist for Mexico, Gabriel Lozano, and our Head of Latam Real Estate Equity Research, Adrian Huerta. The boom in industrial real estate construction has been ongoing for the past couple of years. Mexico offers world-class industrial real estate as manufacturing has been such a major part of the economy for so long. Industrial facilities, most of which are Class A, are located in gated industrial parks or secured, stand-alone buildings. Our Mexico economists note that construction of industrial real estate tends to precede by about six months FDI gross inflows into the country (see Mexico’s investment surge: nearshoring, cycle aside, Steven Palacio and Gabriel Lozano, 10 Oct 2023, and Mexico Equity Strategy: DEEP DIVE: Nearshoring Opportunity Could Add $80-170 bn in Exports or 1.2-2.6pp to GDP per Year, Adrian Huerta and Ana Pous Avila, 18 Aug 2022).

Figure 53: Industrial real estate spending and FDI

Source: J.P. Morgan with data from INEGI and Banxico.

Rental prices have been growing strongly (+10-14% yoy since 1Q22 and +15-20% yoy in the North) and this will likely continue for at least another 2-3 years as vacancies, especially in northern markets, are close to zero. This is despite the fact that GLA growth has accelerated 2-3%-pts vs the 2-3% historical annual growth and with some markets in the North already showing space at mid-teen rates. In addition, GLA demand should accelerate even further in the coming quarters as the level of announced investments related to nearshoring has tripled this year to ~$4.5bn per month vs $1.5bn last year on average.

Figure 54: Industrial Real Estate Asking Prices by Region

Source: J.P. Morgan, CBRE.

Demand for industrial acres shows a steep rise coming from electronics and household appliances manufacturers, sectors which have benefited from the increased share of Mexico in US imports. Demand from these sectors expanded from 12% of total demand to 29%, mostly at the expense of furniture (Figure 55). The surge in US investment in manufacturing structures has also been a focus in some of these sectors (electronics).

Figure 55: Demand for industrial spaces by sector, 2023

%

Source: CBRE.

On Housing, it’s important to note a large share of new housing is self-construction, evidenced by the percent of bagged cement sales which is ~65% vs. only 5% in the US. This is largely driven by remittances, which have been reaching record-highs for the past 2 years.

Figure 56: Remittances have been a positive driver for cement demand resiliency, which is related to self-construction

L3M y/y

Source: J.P. Morgan, INEGI and Banxico.

III. United Kingdom: Harder hit by deepening housing correction and affordability crisis

Fears of a housing crisis have been in the headlines for the UK given the shorter-term structure of fixed-rate mortgages in the jurisdiction, which leaves the housing market (and the economy more broadly) more exposed to interest rate cycles and an affordability squeeze in the current high interest rate, high inflation environment. Mortgages make up 88% of total UK household bank debt although existing mortgage borrowers represent less than 30% of households, and the proportion of very highly leveraged households is lower still. 52% of total mortgage debt is held by the top 2 household income deciles and 79% by the top 4. The average household income of a prime mortgage borrower is more than twice the national average showing a general skew towards the affluent. Our UK economist, Allan Monks, estimates that if the BoE’s policy rate were to rise to 6%, it would push the mortgage debt-servicing cost this year to levels seen on average in the years leading up to the 2008/09 financial crisis. One reason this number is so high is because more than half of borrowers are now on longer-term five-year deals. This compares to the pre-GFC era when only a third had any form of fixed-rate deal (see UK Economy & Banks: Down but not out: Implications of higher rates, Raul Sinha, Allan Monks and Davide Silvestrini, 16 Jun 2022).

Our Credit, Securitized Products and European Bank analysts, Steve Dulake, Meghan Kelleher and Raul Sinha, take a closer look at the structure of the UK mortgage market and the implications of higher interest rates on homeowners and the overall economy. Using BoE data, they estimate that around £414bn of fixed-rate mortgages in the UK have faced or will face reset in 2023-24 as initial interest rate fixation periods expire, which equates to ~32% of outstanding regulated mortgage stock as at YE22. Of this volume, £242bn (18%) face reset in Q4 2023 through YE24, including £109bn of 2Y, £18bn of 3-4Y, and £116bn of 5Y fixed mortgages. In contrast to the US, where long-term, 30-year (and, to a lesser extent, 15-year) fixed-rate mortgages dominate outstanding mortgage debt, the UK mortgage market features much shorter-term initial interest rate fixation periods, of typically 2, 3, or 5 years, before loans revert to a higher variable rate that is most often set by the lender. This lender-specific rate is known as the Standard Variable Rate, or SVR, and it generally reflects moves in, but does not explicitly track, the BoE Bank Rate.

In a rising rate environment, UK borrowers are forced to reset to a higher rate, whereas in the US, the rise in 30-year fixed mortgage rates slows both the volume of prepayments and home sales, but existing borrowers have the benefit of hanging on to low interest rate fixings for a prolonged period of time. Figure 57 shows the trajectory of quoted interest rates for 75% LTV, owner-occupied mortgages by initial fixation period, based on Bank of England data. Though current levels of around 5.6% and 5.0% for 2Y and 5Y fixed product, respectively, have declined relative to their mid-2023 peaks, they remain highly elevated relative to levels seen in the past several years. Meanwhile, current SVRs across a selection of UK mortgage lenders range from around 6.25% to 9.75%, with an average of 8.3%.

Figure 57: Quoted Interest Rate for 75% LTV Mortgages

by initial fixation period, %

Source: Bank of England.

A surge in mortgage activity in late 2020 and 2021 was fueled by a combination of low interest rates, higher excess savings balances, the rise of work from home, and the temporary stamp duty (SDLT) holiday. Annual gross mortgage lending has increased by +7% CAGR since 2010. This has left a significant proportion of mortgage borrowers facing the prospect of rolling into a much higher mortgage rate over the near-term, regardless of refinancing or resetting onto SVR.

Though the ‘refi wall’ has been well-managed so far, despite the surge in mortgage rates, aided by a resilient labor market, 2Y fixed-rate mortgage borrowers with resets through 24Q2 remain vulnerable to stress given the sharp differential between historically low mortgage rates at origination versus now. Current 2Y fixed mortgage rates are ~300-420bp higher than mortgage rates at origination, while current 5Y fixed mortgage rates are ~240-350bp higher (Figure 59), meaning that borrowers coming up to reset are significantly ‘out of the money’. Furthermore, equity build-up over this 2Y period has been limited, leaving this cohort of borrowers more vulnerable relative to those with upcoming 5Y mortgage resets that were originated back in 2018-19. Given UK mortgage rates are linked to the swap rate, mortgage rates could fall with lower inflation.

Figure 58: Annual gross mortgage lending has increased by 7% CAGR since 2010 lows but is expected to contract in 2023/24

Annual gross mortgage lending, £bn

Source: J.P. Morgan estimates, BoE, UK Finance.

Figure 59: Volume of UK fixed-rate mortgages reverting to variable rate

£bn (LHS) and % (RHS); by initial interest rate fixation period, and indicative differential of mortgage rate refinancing gap

Source: J.P. Morgan, Bank of England. Note: As of Q2 2023. Reflects regulated mortgage advances from Bank of England Mortgage Lenders and Administrators Statistics.

Figure 59 shows UK house prices fell at the fastest annual rate in 14 years in September, declining by 4.7% (although slightly improving in October), the biggest year-on-year drop since 2009, according to Halifax, the UK’s biggest mortgage lender. Figure 60 shows the cumulative change in National UK HPI vs 1-16 years ago.

Figure 60: Cumulative Change in Nationwide UK HPI

current vs. 1-16Y ago, % (NSA)

Source: J.P. Morgan, Nationwide. As of Oct-23.

UK house prices look set to remain under pressure over the near to medium term and the affordability crisis should be prolonged as the Bank of England has seemingly reinforced their ‘high for long’ stance. Our European Bank analyst, Raul Sinha, estimates that ~0.8mn mortgages will be refinanced in 2H23 and a further ~1.6mn mortgages in 2024 (or ~28% of total owner-occupied mortgages). From an affordability perspective, our Credit analysts estimate that refinancing from a 2% mortgage into a 4.5% mortgage (which is below current levels) means that an additional 8-10% of household disposable income will be used towards higher mortgage payments, taking the mortgage affordability ratio (mortgage payments as a percentage of take-home pay) up to 40% or more, when considering the drop in real income. Increasing this refinancing stress up to a 6% mortgage rate (as seen in 23Q3) implies that 13-16% of additional disposable income needs to be utilized to service mortgage debt, which pushes the affordability ratio up to a pre-GFC level of 45% – a burden that could very well be unsustainable for a prolonged period, according to their view. In fact, the latest data from Nationwide on mortgage affordability for first-time buyers shows that the affordability ratio has moved sharply upwards, to above 38% in 23Q2 and 23Q3 from around 30% at the start of 2022 (Figure 61).

Figure 61: UK Mortgage Affordability for First-Time Buyers

%

Source: J.P. Morgan, Nationwide. As of 23Q3.

As an illustration, if all borrowers were on variable rate deals now, the current 5% policy would be sufficient to take the interest burden up close to the high seen prior to the 2008/09 financial crisis. But given the current structure of the mortgage market, delivering this same level now would require BoE rates of close to an inconceivably high 8-9%.

Figure 62: Implied share of existing UK mortgage borrowers on floating rates

%

Source: BoE, J.P. Morgan calculations.

Mortgage durations are lengthening given higher rates and affordability concerns. Figure 63 highlights the growing proportion of new purchase mortgages with >30 year terms. Data from UK Finance also suggests the proportion of first-time buyers taking out a mortgage with a term of >35 years hit a record high in March 2023 at 19%. At the same time, 8% of home movers arranged mortgages with terms >35 years.

Figure 63: Proportion of new house purchase mortgages taken out with over 30-year term

Source: UK Finance, RICS.

Looking at the four-quarter change in the interest burden to measure the speed of the impulse from higher rates, a 6% BoE rate would now be needed to deliver a shock that is comparable to the largest jolt seen during 1997-2007. Given this kind of shock was seen several times prior to the GFC without inducing a recession, an even higher rate might now be necessary. However, for illustrative purposes, if all mortgage borrowers were instead on variable rate deals, the shock after a move up to just 5% would be considerable and on a scale comparable to the adjustment seen in the late 1980s.

Figure 64: Only 30% of UK households have a mortgage (vs 43% in 1992) while 35% of households are outright owners

Source: J.P. Morgan estimates, UK Households Survey.

Our credit analysts also note that the recourse nature of UK mortgage lending and the general rule that “repossession is a last resort”, means that lenders are more likely to work with challenged borrowers to keep them in their homes. This provides a level of default protection that can stand in contrast to the possibility of voluntary defaults in the US.

IV: Asia: China’s double-dip is the exception

China: Comfort with the current housing correction

Our China economists, Haibin Zhu and Tingting Ge, see a double-dip for the housing market as the new baseline, and official comments suggest that policymakers are comfortable with the current housing correction. In late August, China unveiled multiple demand-side easing measures to support the housing market, including “first-home” definition relaxation, lower down-payment requirements, lower second-home minimum mortgage rate and existing mortgage rate, etc. The recent policy easing impact has been modest. Most housing activities have stayed weak. The JPM housing index is stuck at a subdued level as most housing activity indicators remained sluggish in October. The contraction in real estate investment stayed elevated at 11.3%oya (vs. -11.2%oya in September). New home sales (area) fell 21.0%oya in October (vs -21.1%oya in September), and new home sale (value) fell 14.3%oya (vs -20.2%oya in September). New home starts (floor space) contracted 20.2%oya (vs -16.9%oya in September). With ongoing home-delivery efforts, new home completion (area) continued to outperform, but softened to 14.0%oya in October, after a jump of 24.0%oya in September. High-frequency tracking of new home sales also stayed soft as of early November. The policy easing since late August was supposed to partially unlock upgrading demand, and there is usually a time lag in policy transmission. There is rising uncertainty on whether the secondary home sales outperformance will continue and whether it will translate into a primary home sales recovery. The policy effectiveness of recent demand-side easing seems limited so far.

Figure 65: Housing policy and housing market activity

Declining policy index implies policy easing

Source: NBS, J.P. Morgan.

Figure 66: Housing transactions

Source: CEIC, Wind, J.P. Morgan; Month-to-date tracking for July 2023.

Our China economists note that weakness around China’s housing market is two-sided. On the demand side, the weak home sales reflect weak housing demand, weighed on by weak home price expectation, high pre-cautionary saving incentive amid uncertainty around future income and job security, as well as concerns around home delivery. Housing affordability is one constraint, but not the dominant one for now. Recent demand-side easing measures aim to mitigate demand-side weakness and stabilize housing transactions, though likely at a persistently lower equilibrium level (compared to 2016-2019 average or 2H20-1H21 level).

On the supply side, continued sluggishness in land sales and the high share of land purchase by SOE developers (including LGFVs) reflect low incentive and capability for private developers to purchase land and start new projects. Last November’s 16 measures aimed to mitigate the funding stress of low-risk private developers, but the impact has faded. With continued and likely intensified divergence between SOE and private developers’ liquidity access and home sales, the balance sheet condition of private developers may have deteriorated. The CRIC’s tracking of top 100 developers’ contracted sales dropped 28%oya in October (vs. -29% in September). SOEs continued to outperform with a 14%oya decline, while non-distressed POEs were down 34% and distressed names dropped 52%. Our China economists forecast a 20% fall in full-year land sales revenue, and the risk is biased to the downside, especially considering recent property sector liquidity distress, along with a contagion risk to other private developers and even less prudent SOE developers.

Figure 67: China: 70-city property price

Source: NBS, J.P. Morgan.

Figure 68: China developers’ home sales

Source: CRIC, J.P. Morgan.

Supply-side problems are more challenging, and absence of supply-side easing points to high-single-digit or even a double-digit decline in real estate FAI next year and beyond. A new round of liquidity support is likely required to help low-risk private developers. A relaxation in administration restrictions in the housing market may also be necessary to assure reasonable profits in the housing market. However, the trend of de-marketization under the new housing policy framework, or a shift from “housing.com” to “housing.org”, points to the persistence of supply-side issues. The policymakers’ priority has been on ensuring home delivery, instead of reviving developers or the housing market. Though new home completion stood at 113% of the December 2020 level in September, new home sales slipped to 51%, 36% for new homes started and 68% for real estate FAI. Our China economists now expect real estate FAI to decline around 9% for full-year 2023. In the absence of a partial lift from home completion, it is conceivable that there could be a high-single-digit or even a double-digit decline in real estate FAI next year and likely beyond. Their estimates suggest a 5% decline in real estate FAI drags down GDP growth by 0.3-0.4%-pts, or 0.6-0.7% when taking into account indirect impacts (see China housing: Impulse from recent easing has not kicked in, Tingting Ge et al., Sep 15).

Official comments seem to signal higher than expected tolerance with the current housing market correction, and no surprise from the Central Financial Work Conference. At the 3Q activity data press conference, the National Bureau of Statistics deputy director Laiyun Sheng stated that the current housing sector correction is conducive to the real estate sector’s transformation of high-quality development. He referenced the housing sector’s high growth during 2003-2020 as unsustainable, a period during which annual average real estate investment experienced 19.9% growth, while home sales value grew annually by 20.3%. The current housing sector correction was referenced as conducive to the elimination of low-efficiency production capacity and structure optimization, especially for the high-quality development of the housing sector going forward. The long-awaited Central Financial Work Conference was held on October 30-31. There was no surprise in the housing policy narrative, similar to what had been mentioned before: (i) enhance the regulatory framework on developers and strengthen fund control, strengthen macro-prudential regulation; (ii) satisfy all developers’ reasonable financing needs with equal treatment between SOE and non-SOE developers; (iii) city-specific housing policy to support both first-home and upgrading demand; and (iv) accelerated construction of affordable housing (see China housing: Policy easing impact has been mild, Tingting Ge et al., Oct 19).

There has been rising market speculation that the government is bailing out the real estate sector, but this is not our base case yet. On November 6, Shenzhen SASAC and Shenzhen Metro pledged their support for Vanke via potential asset acquisition and bond purchase. This happened after the slump in Vanke’s bond prices. Then on November 8, Reuters reported that Ping An was required to take a controlling stake in Country Garden and inject capital in phases to ease Country Garden’s liquidity issues, though it was denied by Ping An afterwards. Note that although Vanke is not a pure SOE, Shenzhen Metro is its largest shareholder. The pledged support from Shenzhen SASAC and Shenzhen Metro is relatively more straightforward. Shenzhen SASAC emphasizee a “market-oriented approach,” suggesting that liquidity support for Vanke will not be fully unconditional. But in the case of Country Garden, it is a private developer and it has defaulted already. Our property analysts think a bail-out after a negative credit event is unlikely to revive a struggling developer, and even if an SOE takeover takes place, it may not be a cure-all.

Many comparisons have been made between China’s current structural housing challenges and similarities to Japan in the early 1990s, but J.P. Morgan’s Chief China economist, Haibin Zhu, points out that there are important differences. He views China’s housing price overvaluation as less severe than Japan’s in the 1990s and believes the Chinese government has stronger control of both the asset and liability sides of the debt problem. Most importantly, the balance sheet recession is not a reality yet in China. This is largely because the government has adopted the strategy of protecting house prices but letting volumes correct dramatically. This is in sharp contrast to Japan’s episode, when prices and volume fell simultaneously. As a consequence, the macro cost (sharp decline in volume activity and slower real estate investment) is larger in China, but the benefit is that financial risk associated with asset price decline has stayed under control.

Although balance sheet recession is not a real risk now, the future depends on whether policymakers can continue to keep house prices relatively stable. An important reason why the government is able to maintain relatively stable new home prices is because new home prices had been kept lower than secondary home prices in the past (due to a price cap for new home sales). The gap has narrowed in recent years as secondary home prices have declined more than new home prices (due to a price floor for new home sales). An alarming signal is that secondary home prices have started to fall again in some cities in recent months, along with a rise in secondary listings after the policy easing in late August. A sharp fall in secondary home prices is not the baseline scenario yet. If it happens, this could be a game-changer in that a mutually reinforcing decline in new home prices and secondary home prices may be formed, leading the way for the Japanification risk to materialize.

Figure 69: China’s housing market correction

Source: NBS, CEIC, J.P. Morgan.

Figure 70: Japan’s housing market correction

Source: CEIC, J.P. Morgan.

While policy easing surely is a welcomed first step, J.P. Morgan’s China Property Equity analyst, Karl Chan, believes the core issue in the Chinese property market right now is the low homebuyers’ confidence, on both home price expectations and the outlook for income and employment. Greater relaxation in mortgages and home purchase restrictions in top-tier cities should help stabilize sentiment as at least they potentially can unlock some upgrade demand which was previously suppressed. However, this is not something which can be easily fixed by simply removing certain restrictions or improving homebuyers’ affordability. For the current easing cycle, the main purpose is to support the downside and prevent further deterioration. However, triggering strong recovery is unlikely the core objective as the overall policy framework remains that “homes are for living, not for speculation”. In the last easing cycle in 2015, the magnitude was stronger and more top-down. This time around, policy easing is being rolled out more gradually at the local level, with key decisions left with the local government. For the tier-1 cities, he expects a low-single-digit increase in home price over the next 6-12 months, below 5%, mostly driven by the recent policy easing. For tier-2 cities, he expects flat home prices. For low-tier cities, home prices may still be under pressure and down further 5-10% due to over-supply and under-demand.

Our Asia Credit analysts led by Soo Chong Lim expect property sector default rates to stay elevated as credit conditions remain challenging. To understand the credit conditions, it is important to examine how developers normally fund their operations. About 32% of funding comes from self-raised capital, which includes equity and bonds financing from onshore and offshore markets. Development loans and mortgages provide another 12% and 17% of total funding, respectively. Loans from financial institutions dropped about 2ppt compared to pre-COVID level. Despite pressure from the announced 16 measures, lenders have not stepped up their direct funding support to the developers, except for rolling over existing exposure. As of end-September, cumulative funding received via mortgages is 7% lower so far this year, but 1ppt higher as a proportion of total. Banks are somewhat toeing the government’s line on mortgage financing, as the decline is notably less severe compared to the drop in property sales.

Figure 71: China residential land sales value by month (2019-2023)

yoy change & vs 4-year average

Note: October land sales data may not be final, and the number may be restated subsequently.
Source: CREIS.

Developers have not been able to tap the offshore credit market and private companies have limited issuance onshore. Offshore annual bond issuance exceeded $70bn at its peak but dwindled to less than $1bn YTD. For the onshore bond market, there is further divergence between SOE and POE developers. Credit access for government-backed developers remains strong with positive net issuance. Privately owned developers, on the other hand, have recorded three consecutive years of net redemption, with YTD tally running at Rmb135bn. While the CBIC guaranteed bond issuance scheme is one of the announced measures to help private companies, the amount raised so far is not sufficient to address the refinancing gap. Additionally, the sector as a whole would still have to deal with $13bn of offshore maturities in 2024 and will need to look for alternative funding sources to cover this shortfall.

Defaulted bonds in China propertyhave amounted to $124bn over the past two and a half years. Prior to Country Garden, China property sector had already chalked up $114bn of cumulative defaults since the beginning of 2021. The sector accounts for 94% of total defaults in Asia over that time frame. This has effectively wiped out close to 61% of $203bn China property bond stock (HG and HY) outstanding at the end of 2020. Two-thirds of China HY property bonds have defaulted. As a result, the total bond stock of HY property has shrunk to $38bn from a peak of close to $150bn.

Our Asia Credit team expects another $8bn could still be at risk of default in 2024. While the amount may look smaller compared to prior years, this number would still translate into double-digit default rate for next year. The market is also expecting default rates to stay elevated judging from some bonds trading less than 10 cents on the dollar (see Asia Credit Perspectives: Expect 4.5% Asia HY default rate in 2024, Soo Chong Lim et al., Oct 26).

Figure 72: China property – HY bond maturity by month

US$ billion

Source: Bloomberg Finance L.P.

Hong Kong: Headwinds still prevail

Karl Chan, Head of China/HK Property Equity Research, notes that the residential market has been losing momentum over the past few months, with residential prices down 20% since the peak in 2021. Several headwinds still prevail, including (1) a negative carry with mortgage rates (4.1%) being much higher than the rental yield (2.7%); with interest rates “higher for longer”, the negative carry may last for a while; (2) inventory is piling up with the average inventory month being >25 years (among launched units in the primary market), causing price-cutting pressure by developers; (3) a weak stock market, which has seen a high correlation to Hong Kong home prices, may continue to drag on sentiment in the residential market.

Figure 73: Residential transaction by value

HK$ mn

Source: CEIC.

Figure 74: Residential transaction by unit

Units

Source: CEIC.

Figure 75: Residential prices YoY % vs HSI YoY%

Source: Bloomberg Finance L.P.

Japan: Property prices rising for the first time since 1989

The combination of ultra-low funding costs, loose liquidity, and sharp accumulation of household savings through the pandemic is fueling asset price inflation, which is on the rise in Japan for the first time in earnest since the late 1980s. J.P. Morgan’s Japan senior economist, Ben Shatil, notes that nationwide property prices are rising toward a 10% oya clip for the first time since 1989. Tokyo condominium prices have, on average, now risen back to their 1990s asset price bubble peak. And, in real terms, headline property prices have risen more in the past couple of years than in the decade before that. As property prices rise, consumer leverage is also increasing. The stock of mortgages extended to households edged up by around 4% of GDP since end-2019 after having flatlined for almost two decades before that.

The bursting of the 1990s asset price bubble left property prices in Japan languishing for the best part of thirty years, a trend exacerbated by a lack of organic demand for new housing alongside demographic headwinds. To be sure, certain prices have been trending up since the GFC. Tokyo condominium prices have risen around 40% since their 2007-08 trough, leaving nominal prices on par with their bubble peak on some measures (Figure 76). But rapid rises in property prices in a broader context have taken hold much more recently. The official nationwide residential property price index has risen almost 15% above headline inflation since end-2019, reflecting rapid nominal price gains not just in Tokyo, which are up around 20%, but also in other metropolitan areas (Figure 77). Osaka, for example, has seen headline property prices rise 22% over the same period. Gains in real estate have been mirrored in rising land prices, albeit generally by smaller magnitudes.

Figure 76: Tokyo metropolitan condominium prices

Pre-bubble peak=100, 6mma

Source: REEI, J.P. Morgan.

Figure 77: Japan real residential property price index

April 2008 = 100, sa, deflated by headline CPI index

Source: Ministry of Land, Infrastructure, Transport and Tourism, J.P. Morgan.

There is some evidence that price gains are persisting, and potentially even accelerating. Anecdotally, demand for housing is surging in some pockets of the market. The former 2020 Olympics Athletes’ Village in Tokyo, now converted into several thousand apartments, received an average of over 70 bids for each unit on sale according to local media reports. In a broader context, nationwide prices have risen by 6% oya or more in each of the past 18 months; they have risen by over 8% oya in ten of those. Neither the pace of post-pandemic property price rises, nor the time over which these gains have been sustained, has been matched since the late 1980s.

Despite rising property prices, rents have barely moved. The rental CPI has averaged -0.2% oya over the past decade; in the past three months it has been flat (Figure 78). Links between property prices and measures of rentals in Japan’s CPI are tenuous, unlike in most other developed markets or even in East Asian peers like Singapore, where house price gains have produced soaring rents.

Figure 78: Japan nationwide property price index and rents

% oya, both scales

Source: BoJ, MLITT, OECD, J.P. Morgan.

With the bulk of household mortgages made on floating rates, and almost 40% of the stock of all bank loans made at a rate of less than 0.5%p.a., our Japan economics team expect a relatively long but well-signaled transition to exiting negative rates.

Figure 79: Japan board mortgage rates and housing loans

Source: BoJ, J.P. Morgan.

Figure 80: Japan 35-year fixed mortgage rate

%p.a., deflated by ex-post official core CPI adjusted for all policy factors

Source: BoJ, Japan Housing Finance Agency, J.P. Morgan.

Singapore: Moderating private residential growth

Singapore/ASEAN Property and REITs Equity Analysts, Mervin Song and Terence Khi, note that 3Q23 private residential prices increased by 4.0% YoY/0.5% QoQ which is slower than the 8.6% rise over 2022. Housing supply was increased by 5,160 units (47% YoY/26% HoH) under 2H23 confirmed government land sales (GLS) program which follows increases over the past 2 years (see Singapore Property: Moderation ahead, Mervin Song and Terence Khi, 8 Dec 2022). While supply under the confirmed list for 2023 of 9,250 units is close to ~10,000 units annual demand, it does not address the under-supply over the last few years. Current supply remains tight at 1.6 years. Contrary to their earlier expectations of mortgage rates approaching 5% with Fed Funds rate rising to 5% or higher, 3-month SORA has only risen to 3.5-4.0% and due to competition from banks, home buyers can refinance their existing floating mortgage rates from low to mid 4% to 1-year fixed at ~3% with option to change to another mortgage package in a year’s time. Combined with 6-8% p.a. increase in median income over the last few years, demand for housing and prices are expected to remain firm for mass market condominiums. However, the luxury segment is likely to cool owing to lifting of additional stamp duty for foreign buyers from 30% to 60% in April 2023 (see Singapore Property: Residential stamp duties doubled to 60% for foreigners, Mervin Song and Terence Khi, 27 Apr).

Figure 81: Private residential prices up 0.8% QoQ / 4.4% YoY while resale HDB prices up 1.3% QoQ / 6.2% YoY

Index

Source: URA, HDB.

Figure 82: 16,747 unsold units implies sufficient stock to meet 1.6 years of demand, with supply tightness especially in OCR and RCR

OCR = Outside Central Region. RCR = Rest of Central Region. Unsold units (LHS); Years of demand (RHS)

Source: URA, J.P. Morgan.

Figure 83: Median income is up 72% in the past decade, surpassing the 55% rise in home prices

Median income and price index (LHS)/ Price to income (RHS)

Source: URA, SingStat.

Figure 84: Monthly income has grown at 6-7% annualized pace since COVID

YoY Change in Employee Monthly Income

Source: SingStat, J.P. Morgan.

Australia: Housing market continues to confound the skeptics

Ben Jarman, Chief Economist for Australia, finds that housing prices have continued to rise through August and momentum has grown. Across Australia, house prices have climbed for the past 6 months and are well off the cycle lows in January. Since the turn of the year, house prices across the country are up by 2.3%. This lift has come about despite sharply higher interest rates, tougher mortgage assessment criteria and cost of living pressures. Figure 85 shows dwelling prices in major cities.

Figure 85: Dwelling prices, major cities

Index

Source: RP Data/CoreLogic.

The turnaround is impressive against a challenging backdrop, particularly given the focus on the looming mortgage cliff at the beginning of the year. It should be borne in mind though that this peak-to-trough decline is the deepest in over 40 years. The reset of fixed mortgages was a prominent theme in 2022 and the largest monthly reset occurred in May 2023. The share of fixed-rate loan expirations remains above the longer-run average until early 2024 (see Australia’s mortgage reset: The quick fix, Tom Kennedy, 11 Jan).

Figure 86: AU housing’s peak-to-trough to recovery cycles

Source: CoreLogic.

Figure 87: The 2023 mortgage cliff

Source: RBA, Company Reports.

The surge in Net Overseas Migration (NOM) has been a supporting factor. Permanent and long-term migration inflows rebounded sharply in 2022 and levels are tracking at/slightly above the pre-COVID average. With the government targeting a high rate of NOM through to 2025, aggregate demand appears to be on a solid footing.

Figure 88: AU Population Growth – Driven by surging NOM

Source: ABS.

Figure 89: Australia: Housing Lending indicators

A$bn, ex-external refinancing, monthly

Source: ABS, J.P. Morgan.

Australia’s high frequency housing data were mixed in September; housing credit accelerated to 0.4%m/m sa, but residential dwelling approvals fell about 5%m/m sa. Housing credit recorded the largest monthly gain this calendar year, although in unrounded terms was a touch above 0.35%m/m sa. The uptick in housing sector credit growth was driven by owner-occupiers (+0.4%m/m sa), while investor credit growth (+0.2%m/m sa) recorded a very small fall. The value of new loan commitments, which maps closely to housing credit growth, has remained broadly unchanged over the past few months, so the uptick potentially reflects increased new loan growth. Slower loan amortization may instead account for the rise—in the October minutes, the RBA noted extra mortgage payments had been below the pre-pandemic average since the start of the year—but the margins are fine and the overall increase is small; the Australia Economics team still expects housing credit growth to remain around 0.3%-0.4%m/m sa in the coming months.

Figure 90: Australia: Residential building approvals

000, per month

Source: ABS, J.P. Morgan.

Australia’s rental market has tightened materially in the past few years as a moratorium on rental evictions, stretched affordability metrics and the supply/weather-driven dearth of dwelling completions tightened the rental market. This is most evident in the national vacancy rate which has fallen sharply in the past two years and is currently tracking at multi-decade lows (Figure 91). Supply issues have also added to rental pressure with the number of dwelling completions drifting lower through the pandemic despite the spike in starts/building approvals.

Figure 91: Rental inflation and vacancy rates

Source: ABS, J.P. Morgan.

Average household size fell through the pandemic, fueling demand for residential rental dwellings (Figure 92). This reduction has obvious implications for housing demand, with the RBA estimating the shift lower since the early stages of the pandemic requires 120K-140K new dwellings to maintain the residential vacancy rate at pre-pandemic levels.

Figure 92: Average household size

Residents per dwelling

Source: ABS, RBA, J.P. Morgan.

Annual rental inflation increased close to 4%-pts between 1Q22 and 1Q23 in Australia, and current conditions suggest a further acceleration is likely. Rents comprise a nontrivial 7% of the CPI basket. Higher population growth and a fall in the size of the average household over the pandemic are supporting demand for rental properties, while higher interest rates and construction costs are curtailing the development of new supply. This comes at a time when we expect other elements of the CPI basket to moderate, so the trajectory of rental inflation is meaningful for how quickly inflation can return to target.

Figure 93: Actual rental inflation vs. model implied inflation

% oya

Source: ABS, J.P. Morgan estimates.

India: Mid-cycle dynamics with normalization in 2026

J.P. Morgan’s Indian Financials and Property Equity analyst, Saurabh Kumar, notes that compared to the mature property markets in the rest of Asia, India’s residential sector is entering mid-cycle with FY24 marking the third year of what looks to be a typical 8- to 9-year upturn in sales. Pan-India sales growth in FY23 was 44% yoy and volumes were 55% higher vs. pre-COVID levels. Inventory draw-down has sustained with tier-1 cities reporting inventory levels of 12 months – the lowest since 2008. This is also reflected in strong pre-sales growth across listed developers with most beating sales guidance laid down at the start of the year. DLF / Macrotech / GPL were notable standouts in our coverage. Rate hikes through the year (~250bps fully passed into mortgages) have not had much impact on demand despite fears. Guidance for FY24 pre-sales growth across developers remains 20-25%, which we think is achievable as contribution of pricing assumed is minimal.

Figure 94: Where are we in the cycle?

Source: J.P. Morgan.

Figure 95: India long-cycle available units pricing trends adjusted for CPI inflation have seen a steady decline

Source: PropEquity.

Property developers’ earnings should normalize FY26 onwards and are underrepresented in this cycle as there is a large difference between revenue recognition and presales run rate (25-100%). EBITDA margins are also depressed as overhead cost on incremental sales is being apportioned to a lower revenue run rate. These both should normalize FY25/26 onwards, likely resulting in sharp revisions on FY25/26 core margins and revenues.

The office sector is seeing strong captive demand offset against weak IT demand. The office sector is seeing a dichotomy with strong demand for gross leasing from global captives being offset against expiries in the SEZ spaces from conventional third-party IT firms.

Retail has fully normalized with 8-9% consumption growth in malls likely. Retail consumption has fully normalized and back to 110-120% of pre-COVID levels across malls. Our analysts see a number of large global retailers looking to enter India, which is positive for marquee assets with listed developers. Consumption should grow at 8-9% across assets in FY24 and our checks suggest that rent-to-sales ratios are not stretched across assets.

Figure 96: Pan-India pricing growth – 4% nominal price increase since 2008

Rs/ft

Source: PropEquity.

Figure 97: Pan-India total absorption

msf

Source: PropEquity.

V: US Commercial Real Estate to remain under pressure, but not a systemic trigger

In the United States, Commercial Real Estate should remain top of mind, particularly for the office market, given the current weakness in regional banks and a wall of maturing loans across the ecosystem ($448 bn in 2023 with 60% held by banks). Banks have tightened lending standards for CRE, making it more challenging for CRE investors with high debt levels to secure financing (Figure 98). Higher financing costs and the relatively high risk weights of CRE assets are also lowering the loan-to-value ratios at which large banks are willing to provide CRE loans.

Figure 98: Credit Standards for US Commercial Real Estate Loans and Funding Conditions for Commercial Mortgage-Backed Securities

Percent, left scale; basis points, right scale

Source: Bloomberg Finance L.P., Commercial Mortgage Alert, European Banking Authority Risk Dashboard, Fitch Ratings, Green Street Advisors, MSCI Real Estate, Trepp, US Federal Reserve, IMF staff calculations.

As a percentage of CET1 capital, CRE exposure excluding multifamily, farm, and owner-occupied properties is concentrated at small regional banks versus GSIBs.

Figure 99: Select Small Regional Banks with Elevated CRE Exposure

Source: S&P Capital IQ, J.P. Morgan. Note: Data as of 2Q’23. Composite of small regional banks with total assets between ~$30-100bn. Non-farm, non-residential CRE exposure excludes owner-occupied CRE loans.

The office market within CRE is facing the biggest challenges as it is facing a structural supply/demand problem and current office fundamentals are weak. Vacancy and availability rates are now above GFC highs. Office rent growth remains anemic at 0.6% in nominal terms and -3% in real terms as of Q3 2023. CMBS office delinquencies are increasing rapidly. As of September 2023, office transaction volumes registered $37bn year-to-date, which is a 62% decline from a year ago. CMBS office loan serious delinquency rates (60-day+ including foreclosed/REO and non-performing matured loans) increased to 5.1% in October 2023 from 5% the month prior and 1.4% in September 2022 (local lows). CMBS office loans total about $185bn outstanding (excluding defeased loans). 80% is fixed-rate and 20% is floating-rate. Run to scheduled maturities for floating-rate loans, refinancing needs are about $58bn or 31% of the total outstanding due for the remainder of this year and next year. Our CMBS analyst, Chong Sin, expects about 21% of CMBS outstanding office loans to default eventually, with a loss severity assumption of 41% and forward cumulative losses of 8.6%. In more adverse (and quite draconian) scenarios, where occupancies permanently shift 20 points and 30 points lower, cumulative default rates could reach 28% and 35%, respectively, with cumulative losses of 13% and 18%, respectively.

Figure 100: Vacancy and availability rates are above GFC highs

National office vacancy and total availability rate (%), quarterly as of Q3 2023

Source: Costar, J.P. Morgan.

Our Global Credit and CMBS analysts, Steve Dulake, Kabir Caprihan and Chong Sin, expect CRE portfolio stress to arise in office CRE loan books, as vacancy rates are elevated and above GFC levels. Applying an 8.6% loss rate to bank office CRE exposure, they project $38bn of cumulative losses for the sector over a 3-year period, which seems manageable from a capital burn standpoint.

Figure 101: Office rent growth remains anemic

National office year-over-year rent growth (%), quarterly as of Q3 2023

Note: Real rent growth calculated using CPI.
Source: Costar, J.P. Morgan.

Figure 102: CMBS office loan delinquencies continued to rise

Private label CMBS 60-day+ delinquency rates (%) including foreclosed/REO and non-performing matured loans and office loan percentage share of total delinquencies, monthly as of October 2023

Source: J.P. Morgan, Trepp.

In the broader CRE market, the spike in 10Y US Treasury rate is creating pressure on CRE cap rates and valuations, and by extension, default risks are, in large part, driven by the level of rates. Figure 103 highlights why the CRE market is broken. Into the sharp rate selloff over the past two years, lenders have maintained or widened the spreads they are offering to borrowers, meaning fixed mortgage rates have jumped from about 4% in 2021 to 7-7.5% recently. Cap rates (a rough proxy of yield to property investors) have been much slower to adjust as sellers have dwindled given that the full mark-to-market for many of their properties in the current capital markets environment is untenable, holding them back from selling assets or getting re-appraised refinancing. Cap rates can continue to move higher to rebalance borrower levered return on equity. As such, property transaction volumes have cratered and have remained depressed, and any meaningful recovery will be contingent on the path of rates going forward.

Figure 103: The reason the CRE market is broken

Core commercial and multifamily blended cap rates, mortgage rates, and 10yr Treasury rates (%)

Source: MSCI Real Capital Analytics, J.P. Morgan.

Figure 104: Rapidly rising mortgage rates are creating pressure on CRE cap rates and valuations

CRE/multifamily cap rates versus levered return on equity (%)

Levered ROE = (1/(1-LTV)) * (Cap Rate – (LTV*Mortgage Rate)). Does not consider future NOI growth nor exit cap rates. Source: J.P. Morgan, MSCI Real Capital Analytics.

Figure 105: Cap rates can continue to move higher to rebalance borrower levered return on equity

CRE/multifamily cap rates versus levered return on equity (%)

Levered ROE = (1/(1-LTV)) * (Cap Rate – (LTV*Mortgage Rate)). Does not consider future NOI growth nor exit cap rates. Source: J.P. Morgan, MSCI Real Capital Analytics.

As expected, a new delinquency cycle has started but the majority of the uptick in CMBS loan delinquencies has been driven by maturity defaults as loans coming due have trouble refinancing into a fairly tight DSCR/debt yield constrained market. Our CMBS analysts observe that refi success rates (defined as early or on-time payoffs) continue to fall. As of the September remit period, the year-to-date conduit CMBS refi success rate excluding defeased loans stood at 70% and by now, it’s clear that the target of 60% was too low as refi success rates would have to fall to about 30% for the remainder of the year to reach our 60% target. Naturally, refi success rates for 2024 maturities can be more challenging although the CMBS team still has a conservative estimate of 50% for 2024 and 2025 maturities excluding defeased loans and closer to 70% including defeased loans.

Private label CMBS 60-day+ delinquencies including foreclosed/REO and non-performing matured loans have been moving up across all product types (Figure 106) but the most notable move higher has come from the SASB market, a market that many market participants considered extremely low risk not long ago. That psychology is clearly shifting as an increasing number of SASB loans are maturity defaulting. The marginal driver of rising delinquencies is unsurprisingly office loans defaulting at or near maturity and the majority of these maturity defaulting office loans are floating rate (Figure 107). The confluence of a WFH-induced office demand shock and rapidly rising rates has created an unfortunate asset-liability mismatch problem for this segment of the market, which isn’t unique to CMBS.

Figure 106: Delinquency rates moving higher on maturity-related defaults

60-day+ delinquency rates including foreclosed/REO and non-performing matured loans

Source: J.P. Morgan, Trepp.

Figure 107: Office loans are the marginal driver of increasing delinquencies for the private label market

Private label CMBS 60-day+ delinquency rates including foreclosed/REO and non-performing matured loans by property type

Source: J.P. Morgan, Trepp.

The vast majority of loans scheduled to mature this year and next are floating rate (Figure 108 and Figure 109), with floating rate CMBS loans backed by assets with deteriorating fundamentals at most near-term risk of defaulting. These are 2- to 3-year loans with optional extensions and a lot of these were created in the CMBS market in the post-pandemic recovery period when a lot of real estate cash flows were in flux. Borrowers naturally wanted to maintain optionality through floating-rate financing in such an environment instead of terming out debt. And interest rate caps (most often 3.5-4% strikes) were very cheap when Fed funds were still zero-bound. It’s just that almost no one foresaw Fed funds rocketing from zero to 5-5.25% in a little over a year. Fast forward to today and there is about $100bn of floating-rate SASB loans maturing this year and about 45% of these are under 1x DSCR on an uncapped or organic basis. 90% of these loans are over 1x DSCR on a capped basis but as these loans come due, existing caps expire and borrowers must buy new interest rate caps to exercise optional extensions, which have become much more expensive (see CMBS Weekly: How costly are interest rate caps for SASB floaters? Chong Sin and John Sim, 14 Apr).

Figure 108: A lot of 2021-22 originated floating rate CMBS loans are scheduled to mature this year and next

Current outstanding total private label loan balances by scheduled maturity year and by fully extended year ($bn)

Source: J.P. Morgan, Trepp.

Figure 109: A large portion of floating rate office loans are scheduled to mature this year and next as well

Current outstanding office loan balances by scheduled maturity year and by fully extended year ($bn)

Source: J.P. Morgan, Trepp.

The risk of borrowers walking away from floaters is most salient for assets that are facing fundamental headwinds (lower quality office, rent-controlled multifamily, transitional projects with broken business plans, etc.) as floating rate debt service increasingly becomes more crushing. Property types like industrial and market-rate multifamily still have durable rent growth potential so borrowers may still want to purchase more expensive caps so that they can continue to operate these assets. Of the $100bn of floating rate SASB loans due this year, $19bn are office loans. It’s not that all of these are likely to be defaults, but the marginal defaults to the CMBS market are expected to increasingly come from this corner of the market.

Figure 110: How much CRE prices can fall is dependent on the path of rates and spreads

Levered return on equity estimates under various cap rate and mortgage rate scenarios and implied property price growth assuming no NOI growth

Note: Levered ROE = (1/(1-LTV)) * (Cap Rate – (LTV*Mortgage Rate)). Does not consider future. NOI growth or exit cap rates.
Source: J.P. Morgan, MSCI Real Capital Analytics.

Appendix

J.P. Morgan Research

Cross-asset Research

US housing market headed for a safe landing: Housing affordability a bigger concern than a housing correction, Joyce Chang and John Sim, 28 April 2023

More downside for housing, but normalcy, not a major housing correction, lies ahead, Joyce Chang et al., 24 October 2022

Cracks in the Housing Market?, Samantha Azzarello and Gabrielle Jabre, 10 June 2022

Americas Economic Research

Focus: Upcoming housing drag to be less severe, Daniel Silver, 27 October 2023

Brazil: A closer look into the housing market, Vinicius Moreira and Cassiana Fernandez, 23 October 2023

Mexico’s investment surge: nearshoring, cycle aside, Steven Palacio and Gabriel Lozano, 10 October 2023

US: New home sales move up in July, Daniel Silver, 23 August 2023

US: Existing home sales move down in July, Daniel Silver, 22 August 2023

US: Single-family starts and permits continue to trend up, Daniel Silver, 16 August 2023

US: Housing vacancy rates remain low, Daniel Silver, 2 August 2023

Existing home sales still stuck in the gutter, Michael Feroli, 20 July 2023

US: Jumps in new home sales and consumer confidence, Michael Hanson, 27 June 2023

United States: Housing market stabilization in full swing, Michael Feroli, Murat Tasci and Michael Hanson, 23 June 2023

Canada, Silvana Dimino, 16 June 2023

US Focus: Is the housing drag over yet?, Murat Tasci, 25 May 2023

Focus: Housing activity was strong, until it wasn’t, Daniel Silver, 25 November 2022

There's no place like home: House price surge continues, Joseph Lupton, 13 September 2021

Asia Economic Research

China Housing: Renewed weakness beyond policy lag: Government bailout or shantytown renovation 2.0 not in our baseline yet, Tingting Ge, 15 November 2023

China housing: Policy easing impact has been mild: NBS official’s comment seems to signal comfort with current housing correction, Tingting Ge, 19 October 2023

China housing: Impulse from recent easing has not kicked in: Absence of supply-side easing points to downside pressure into next year, Tingting Ge, 15 September 2023

China: Policy easing is gaining momentum, Haibin Zhu, 1 September 2023

China housing: Double-dip is the new baseline: Real estate FAI contraction to stay deeper and longer; financial risks are mounting, Tingting Ge et al., 16 August 2023

China’s Japanification risk: the good, bad and ugly, Haibin Zhu, 2 August 2023

Housing starts retreat in June, Murat Tasci, 19 July 2023

China housing: The first sequential price decline in 2023: Policy support under way, but more needed, Tingting Ge et al., 16 July 2023

China housing: Heading to summer or back to winter? Broad-based slowing in housing market activities, Tingting Ge et al., 15 June 2023

China re-opening trackers chartpack (Series 37): Home sales slipped again amid renewed sector distress, Tingting Ge et al., 13 July 2023

Australian home loans: March winds and April showers, Jack P Stinson, 1 June 2023

Australia focus: Rents running hot, Jack P Stinson and Ben K Jarman, 28 May 2023

China housing: Price increased 0.3%m/m nsa in April, with diverging performance, Haibin Zhu et al., 17 May 2023

Japan: The great reflation, Benjamin Shatil, 21 April 2023

Australia: So much space for activities, Tom Kennedy, 12 April 2023

Australian housing: Running hot and cold, Tom Kennedy, 1 March 2023

Japan: Housings starts remained weak in December, Yuka Mera, 31 January 2023

China housing: Weak-form stabilization still the 2023 baseline while regulators’ support turns more practical, Tingting Ge et al., 16 January 2023

Australian home loans: Over the hill, Jack Stinson, 12 January 2023

Australia’s mortgage reset: The quick fix, Tom Kennedy, 11 January 2023

China: Housing weakness continued, all eyes on CEWC, Tingting Ge et al, 15 December 2022

China’s policy update: COVID-19 policy outlook; further housing support measures, Haibin Zhu et al., 29 November 2022

China’s policy update: Reopening, housing and RRR cut, Haibin Zhu et al., 23 November 2022

Australian housing data: All fall down, Jack P Stinson, 1 November 2022

China: Policy rate cut opens room for further 5-year LPR cut, housing price contraction continued, Tingting Ge et al., 15 August 2022

China’s attempt to avoid a Japan-like housing bust, Haibin Zhu, 11 August 2022

China’s housing market alarm bell rings again, Haibin Zhu, 21 July 2022

US Equity Research

Homebuilding: Looking to 2024, Deja Vu from 2H22? We Remain Positive and Establish 12/24 Price Targets, Michael Rehaut, CFA, 11 October 2023

The Housing Short Report: September: Short Interest Up Moderately Across Builders, While Products Up Slightly, Michael Rehaut, Andrew Azzi, and Douglas Wardlaw, 11 October 2023

Residential Brokers: Updated residential brokerage models, thoughts on housing backdrop, Anthony Paolone, CFA, 28 September 2023

Updated Residential Broker Models, thoughts on Housing backdrop, Anthony Paolone, 28 September 2023

Homebuilding: August Pending Home Sales Down 7%, Well Below the Street’s -1%, Michael Rehaut, CFA, 28 September 2023

Housing Forecast: SF Housing Starts Should Continue to Stabilize Near Current Levels in 2023 and Improve Modestly in 2024, Michael Rehaut, CFA, 23 September 2023

Housing Forecast: SF Housing Starts Should Continue to Stabilize Near Current Levels in 2023, Michael Rehaut, Andrew Azzi, and Douglas Wardlaw, 13 September 2023

The Housing Short Report: July: Short Interest Down Ever So Slightly Across Both Builders and Building Products, Michael Rehaut, Andrew Azzi, and Douglas Wardlaw, 11 August 2023

Short Interest Rises Slightly Across the Builders, Nearly Flat Across Building Products, Michael Rehaut, Andrew Azzi, and Douglas Wardlaw, 7 June 2023

Housing Starts Should Continue to Stabilize in 2023 and Improve Only Slightly in 2024, Michael Rehaut, Andrew Azzi, and Douglas Wardlaw, 7 June 2023

Horvers’ Housing Monitor: Data Mixed to Negative with Turnover/Pricing Showing “Stabilization”; HD/LOW/FND 2023 Revision Risk Still Negative, Christopher Horvers, Abigail Lake, and Christian Carlino, 21 April 2023

The Property Ticker: Colonial 3Q22 results; Vonovia debt issue; Social housing rents could rise by 7%… and more, Neil Green and Vanessa Guy, 17 November 2022

PMI Deep Dive: Credit Concerns Overblown; PMIs to Benefit from Higher Persistency, Richard Shane, 26 August 2022

LatAm Equity Research

Latam Real Estate: Today’s News, Marcelo Motta et al., 6 November 2023

Latam Real Estate: Today’s News, Marcelo Motta et al., 3 November 2023

US Construction Data Points: Housing Starts Rose 3.9% m/m in July Driven by Single Family’s +6.7%; Permits Flattish, Adrian Huerta and Ana Pous Avila, 16 August 2023

Brazilian Homebuilders: Jun. Heat Map: Materials Inflation Down and Housing Prices Above IPCA, Despite Soft Op. Figures in SP City, Marcelo Motta et al., 7 June 2023

Pedal to the Metal: China’s Policy Update - Further housing support measures, Rodolfo Angele and Lucas F. Yang, 5 December 2022

Mexico Equity Strategy: DEEP DIVE: Nearshoring Opportunity Could Add $80-170 bn in Exports or 1.2-2.6pp to GDP per Year, Adrian Huerta, 18 August 2022

Europe Equity Research

EMEA Metals & Mining: Worsening China Property data & lower GDP forecasts reinforce our cautious sector view, Patrick Jones et al., 15 August 2023

The Property Ticker: Care-home sector resilient despite headwinds; Fenwick to sell store group for £430m; Gove scraps housing tgt and more, Neil Green, Vanessa Guy and Krishna Sathwik Beechu, 7 December 2022

The Property Ticker: Central London office take-up doubles, UK household pressure, Swedish apartments, US housing...and more, Tim Leckie et al., 10 August 2022

UK Economy & Banks: Down but not out: Implications of higher rates, Raul Sinha and Davide Silvestrini, 16 June 2022

Asia Pacific Equity Research

Hong Kong Property: Headwinds still prevail – assuming coverage with a cautious view, Karl Chan, 24 October 2023

Singapore Property and REITs: September 2023 monthly review, Mervin Song, CFA and Terence Khi, 2 October 2023

SG Property Intelligence: Private residential prices up 0.5% in 3Q23; CLI restarted share buybacks, Mervin Song, CFA and Terence Khi, 1 October 2023

SG Property Intelligence: Singapore July new home sales up five-fold, Mervin Song, CFA, Terence Khi and Cusson Leung, 16 August 2023

China Property: NBS data: the weakness continued; further lowering full-year forecasts, Karl Chan, 15 August 2023

Australian Building Materials: 2023 mid-year outlook: housing on the mend, Lisa Huynh and Joshua Olpindo, 22 July 2023

Australian Building Materials: US Housing Starts and Permits - May 2023, Lisa Huynh and Joshua Olpindo, 20 June 2023

Australian Building Materials: June 2023: Supply side constraints provide a floor to housing declines, Lisa Huynh and Joshua Olpindo, 19 June 2023

ANZ Banking Group: 2023 ESG update: Incremental focus on scams, biodiversity and affordable housing, Andrew Triggs, 19 June 2023

India Real Estate: Realty Check: A Hard Night’s Day, Saurabh Kumar, Ashish Mendhekar and Pranuj Shah, CFA, 6 June 2023

LIC Housing Finance, Saurabh Kumar et al., 17 May 2023

Singapore Property: Residential stamp duties doubled to 60% for foreigners, Mervin Song, CFA and Terence Khi, 26 April 2023

Singapore Property: Moderation ahead, Mervin Song, CFA and Terence Khi, 8 December 2022

Korea banks: Policy support for housing market and PF serviceability; limited contagion risk, Jihyun Cho and Katherine Lei, 10 November 2022

LIC Housing Finance: First take 2QF23: Miss on margins, Saurabh Kumar et al., 1 November 2022

Hong Kong Property: What are share prices telling us?, Cusson Leung et al., 23 August 2022

China Property: Some positive news for a few private developers, Karl Chan et al., 15 August 2022

LIC Housing Finance: PPOP pops, Saurabh Kumar et al., 5 August 2022

Global Equity Strategy

US Equity Strategy: The Cost of Even Higher for Longer and Tightening Liquidity, Dubravko Lakos-Bujas et al., 30 October 2023.

China Equity Strategy Report: Ramifications from a cooling property asset, Wendy Liu et al., 24 August 2022

Japan Equity Strategy: Lessons for China’s Real Estate Market from Japan’s Bubble Experience in the Late 1990s, Rie Nishihara and Makoto Arai, 24 August 2022

Global Credit Research

Asia Credit Perspectives: Expect 4.5% Asia HY default rate in 2024, Soo Chong Lim, 26 October 2023

Credit Watch: A Focus on Mortgage and Housing Credit, Stephen Dulake et al., 16 June 2023

HY Housing: Increasing Preference for Higher Beta Credit Heading Into Spring Selling Season, Arjun Chandar, 3 April 2023

High Yield Housing: 2023 Kickoff Swap Idea (BRPCN/HOUS) and Index/Macro Thoughts, Arjun Chandar and Kollatat Thanajaro, 4 January 2023

High Yield Housing: Building Back - Rates and Demand Uncertainty Priced In; Upgrading to Neutral on Relative Value, Arjun Chandar and Kollatat Thanajaro, 21 November 2022

Housing, Metals and Paper/Pack: Q2 Earnings Season Heat Map - Themes, Takeaways, and Top Trades, Arjun Chandar and Kollatat Thanajaro, 9 August 2022

Securitized Products Research

2024 Home Price Outlook: The Great Freeze!, John Sim et al., 10 November 2023

Home Price Monitor: Still holding up, John Sim et al., 10 November 2023

Freddie finds a silver bullet, John Sim et al., 10 November 2023

Office Market Monitor: October 2023, Chong Sin, 7 November 2023

CMBS Weekly: Revising down our 2023 multifamily rent forecast and what’s up with CRE CLO mods?, Chong Sin, 25 August 2023

2023 Housing Outlook: The Great Affordability Crisis, John Sim et al., 10 November 2022

Reference Materials

OECD Economic Outlook, Interim Report March 2023, OECD, 31 October 2023

As China Battles Falling Home Prices, the U.S. Faces a Worsening Housing Shortage, Benn Steil and Elisabeth Harding, Council on Foreign Relations, 13 October 2023

Location, location, location: Mortgage rate impact varies by metro, Alexander Chudik and Anil Kumar, 15 August 2023

Investor Home Purchases Fell a Record 49% Year Over Year in the First Quarter, Lily Katz and Sheharyar Bokhari, Redfin News, 31 May 2023

IMF Global Financial Stability Report April 2023, IMF, April 2023

The US housing market is short 6.5 million homes, Anna Bahney, CNN, 8 March 2023

Threat of global housing slide looms amid rising rates, Lauren Spits and Enrique Martínez-García, Federal Reserve Bank of Dallas, 28 February 2023

The impact of higher interest rates on housing and consumer, Tilmann Galler, JPMorgan Asset Management, 3 February 2023

Making Affordable Rental Housing Part of Europe’s Recovery, Alfred Kammer, Andrea Schaechter, Andreas Tudyka, IMF Blog, 26 May 2021

Managing House Price Booms: Evolution of IMF Surveillance and Policy Advice, Hites Ahir & Prakash Loungani, 15 June 2019

Hot Property: The Housing Market in Major Cities, Springer, Editors: Rob Nijskens, Melanie Lohuis, Paul Hilbers, Willem Heeringa, 2019

Websites

Federal Reserve Bank of Dallas International House Price Database

MacroFinance and MacroHistory Lab

Bank of England Quoted household interest rates
Strategic Research

J.P. Morgan Perspectives

J.P. Morgan Perspectives: Navigating China’s financial markets, Joyce Chang et al., 6 September 2023

J.P. Morgan Perspectives: Food Security and Climate Change: The Makings of a Perfect Storm, Joyce Chang et al., 10 August 2023

J.P. Morgan Perspectives: The great supply chain disruption: ASEAN’s rise, India’s potential, USMCA and Chino-Latino flows, Joyce Chang et al., 23 June 2023

J.P. Morgan Perspectives: ESG and Supply Chain Risks: Putting the Spotlight on the “S” and “G” in ESG, Joyce Chang et al., 2 May 2023

J.P. Morgan Perspectives: The state of global gender balance in 2023, Joyce Chang et al., 7 March 2023

J.P. Morgan Perspectives: Japan’s Big Exit: Ten Questions about Japan’s Regime Change, Joyce Chang et al., 31 January 2023

J.P. Morgan Perspectives: ESG in the USA: The Disunited States, Joyce Chang et al., 22 November 2022

J.P. Morgan Perspectives: Cyber: The new frontline of geopolitics, Joyce Chang et al., 21 November 2022

J.P. Morgan Perspectives: Food Insecurity: A New Normal, Joyce Chang et al., 20 September 2022

J.P. Morgan Perspectives: Goodbye to Negative Yields, Joyce Chang et al., 15 June 2022

J.P. Morgan Perspectives: China’s Financial Markets: Long-term opportunities meet near-term challenges, Joyce Chang et al., 7 June 2022

J.P. Morgan Perspectives: Mind the gap: The pandemic’s scar on gender parity, Joyce Chang et al., 2 March 2022

J.P. Morgan Perspectives: ESG Outlook: Advancing Climate Innovation – The Road to 2050, Joyce Chang et al., 22 Feb. 2022

J.P. Morgan Perspectives: ESG 2022: Energy crunch challenges Net Zero transition, Joyce Chang et al., 16 December 2021

J.P. Morgan Perspectives: Post-Pandemic Regime Change: The Great Acceleration, Joyce Chang et al., 14 December 2021

J.P. Morgan Perspectives: Red Flags on Asia Housing, Joyce Chang et al., 18 November 2021

J.P. Morgan Perspectives: Is the housing market due for a correction?, Joyce Chang et al., 21 September 2021

J.P. Morgan Perspectives: Cyber Epidemic, Joyce Chang et al., 10 August 2021

J.P. Morgan Perspectives: The return of Commodities, Joyce Chang et al., 19 July 2021

J.P. Morgan Perspectives: ESG investing 2021: Going faster, deeper, broader, Joyce Chang et al., 13 May 2021

J.P. Morgan Perspectives: The widening gender gap: COVID-19 takes a toll, Joyce Chang et al., 5 March 2021

J.P. Morgan Perspectives: Digital transformation and the rise of fintech: Blockchain, Bitcoin and digital finance 2021, Joyce Chang et al., 18 February 2021

J.P. Morgan Perspectives: Build Back Better to Boost ESG, Joyce Chang et al., 16 December 2020

J.P. Morgan Perspectives: Can EM Save 60/40?, Joyce Chang et al., 2 December 2020

J.P. Morgan Perspectives: Not Business as Usual: The Rise of Stakeholderism, Joyce Chang et al., 5 October 2020

J.P. Morgan Perspectives: The Credit Crisis that Wasn’t: The Returns Crisis that Looms, Joyce Chang et al., 21 September 2020

J.P. Morgan Perspectives: Pandemic Accelerates Paradigm Shifts, Joyce Chang et al., 8 July 2020

J.P. Morgan Perspectives: ESG and COVID-19: Friends or Foes?, Joyce Chang et al., 18 May 2020

J.P. Morgan Perspectives: Achieving Gender Balance 2020: Why the Disparity?, Joyce Chang et al., 6 March 2020

J.P. Morgan Perspectives: Blockchain, digital currency and cryptocurrency: Moving into the mainstream?, Joyce Chang et al., 21 February 2020

The State of ESG in 2020, Joyce Chang, 5 February 2020

J.P. Morgan Perspectives: What if US yields go to zero?, Joyce Chang et al., 23 January 2020

J.P. Morgan Perspectives: Climate Changes ESG Investing, Part II, Joyce Chang et al., 10 December 2019

J.P. Morgan Perspectives: The rise of the corporates: Is a triple-B cliff on the horizon?, Joyce Chang et al., 1 October 2019

J.P. Morgan Perspectives: China’s index inclusion: A milestone for EM as an asset class, Joyce Chang et al., 12 September 2019

J.P. Morgan Perspectives: The rise of the corporates: Buybacks at an inflection point?, Joyce Chang et al., 17 July 2019

J.P. Morgan Perspectives: ESG Investing 2019: Climate changes everything, Joyce Chang et al., 30 May 2019

J.P. Morgan Perspectives: Leaving LIBOR: The Long Road Ahead, Joyce Chang et al., 30 April 2019

J.P. Morgan Perspectives: Paradigm Shifts: What Lies Ahead, Joyce Chang et al., 5 April 2019

J.P. Morgan Perspectives: Achieving Gender Balance 2019: Progress, Opportunities and Challenges, Joyce Chang et al., 1 March 2019

J.P. Morgan Perspectives: Made in China 2025: A New World Order?, Joyce Chang et al., 31 January 2019

J.P. Morgan Perspectives: Geopolitics and Markets: Risks on the Rise, Joyce Chang et al., 1 November 2018

J.P. Morgan Perspectives: 20 Years After the Asia Financial Crisis: How Is EM Faring?, Joyce Chang et al., 4 October 2018

J.P. Morgan Perspectives: Ten Years After the Global Financial Crisis: A Changed World, Joyce Chang et al., 10 September 2018

J.P. Morgan Perspectives: Investing in gender balance: Opportunities and challenges, Joyce Chang et al., 25 May 2018

J.P. Morgan Perspectives: ESG Investing Goes Mainstream, Joyce Chang et al., 9 May 2018

J.P. Morgan Perspectives: Decrypting Cryptocurrencies: Technology, Applications and Challenges, Jan Loeys et al., 9 February 2018

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Long-term Strategy

The Long-term Strategist: Ten more strategic questions, Jan Loeys and Alexander Wise, 9 November 2023

The Long-term Strategist: US-China de-risking, long-term inflation and interest rates, Alexander Wise and Jan Loeys, 23 October 2023

The Long-term Strategist: Building Strategic Asset Allocation 2023, Alexander Wise and Jan Loeys, 10 October 2023

The Long-term Strategist: Strategic investing questions, by the dozen, Jan Loeys and Alexander Wise, 26 September 2023

The Long-term Strategist: The debate on the long-term outlook for real interest rates, Alexander Wise and Jan Loeys, 2 August 2023

The Long-term Strategist: Top long-term risks and what to do about them, Jan Loeys, 18 July 2023

The Long-term Strategist: The de-dollarization risk scenario, Alexander Wise and Jan Loeys, 16 June 2023

The Long-term Strategist: Real yields along the US curve: Long-term forecasts, Alexander Wise and Jan Loeys, 13 March 2023

The Long-term Strategist: Real bond yields in DM: Long-term projections, Alexander Wise and Jan Loeys, 21 February 2023

The Long-term Strategist: Long- vs short-term risk, Alexander Wise and Jan Loeys, 1 February 2023

The Long-term Strategist: Industrial policy, deglobalization and strategic asset allocation, Alexander Wise and Jan Loeys, 27 January 2023

The Long-term Strategist: Long-term forecasts: Update January 2023, Alexander Wise and Jan Loeys, 6 January 2023

The Long-term Strategist: Forecasting long-term US equity returns with a neural network, Alexander Wise and Jan Loeys, 20 November 2022

The Long-term Strategist: Where are we in Regime Change? Macro volatility, deglobalization, and secular rise in yields, Jan Loeys and Alex Wise, 8 November 2022

The Long-term Strategist: Long-run economic growth forecasts, Jan Loeys and Alex Wise, 10 October 2022

The Long-term Strategist: Bigger questions, shorter answers, Jan Loeys and Alex Wise, 21 June 2022

The Long-term Strategist: What to do with 60/40?, Jan Loeys and Alex Wise, 16 June 2022

The Long-term Strategist: How good are long-term forecasts?, Alex Wise and Jan Loeys, 14 June 2022

The Long-term Strategist: Long-term forces point to higher US bond yields, Alex Wise and Jan Loeys, 4 April 2022

The Long-term Strategist: A demographic reversal to start pushing real interest rates up, Jan Loeys and Alex Wise, 2 March 2022

The Long-term Strategist: Eight clips on strategic questions, Jan Loeys, Shiny Kundu and Alex Wise, 17 February 2022

The Long-term Strategist: Is thematic investing worth it?, Jan Loeys, Shiny Kundu and Alex Wise, 18 January 2022

The Long-Term Strategist: Long-Term FX Forecasts, Alex Wise and Jan Loeys, 14 December 2021

The Long-term Strategist: Democracy metrics and equity markets, Alex Wise and Jan Loeys, 21 October 2021

The Long-term Strategist: Inflation, markets and the end of the Great Moderation, Jan Loeys and Shiny Kundu, 27 September 2021

The Long-Term Strategist: Democracy metrics and equity markets, Jan Loeys et al., 21 October 2021

The Long-Term Strategist: Commodity-linked assets as a long-run inflation hedge, Jan Loeys and Shiny Kundu, 28 July 2021

The Long-term Strategist: Will US market exceptionalism last?, Jan Loeys and Shiny Kundu, 24 June 2021

The Long-term Strategist: Short As on long-term Qs, Jan Loeys and Shiny Kundu, 19 April 2021

The Long-term Strategist: Our Strategic Portfolio, Jan Loeys and Shiny Kundu, 5 March 2021

The Long-term Strategist: Empirical models of long-term US equity returns, Shiny Kundu and Jan Loeys, 1 March 2021

The Long-term Strategist: Can EM solve the 60/40 problem?, Jan Loeys and Shiny Kundu, 2 December 2020

The Long-term Strategist: Business concentration, Jan Loeys and Shiny Kundu, 30 September 2020

The Long-term Strategist: The international 60/40 problem and US Hybrids, Jan Loeys and Shiny Kundu, 29 September 2020

The Long-term Strategist: Fallen Angel and Buybacks: Strategy Update 2020, Jan Loeys and Shiny Kundu, 28 September 2020

The Long-term Strategist: 60/40 in a zero-yield world, Jan Loeys, 30 June 2020

The Long-term Strategist: De-globalization Update 2020, Jan Loeys and Shiny Kundu, 23 April 2020

The Long-term Strategist: Some Longer-term Consequences of Covid-19 Crisis, Jan Loeys and Shiny Kundu, 9 April 2020

The Long-term Strategist: Zero US yields, almost there, Jan Loeys and Shiny Kundu, 11 March 2020

The Long-term Strategist: Why long term?, Jan Loeys and Shiny Kundu, 25 February 2020

The Long-term Strategist: Bonds time diversify much better than you think, Jan Loeys and Shiny Kundu, 14 February 2020

The Long-term Strategist: Financial repression, risk aversion and zero yields, Jan Loeys and Shiny Kundu, 24 January 2020

The Long-term Strategist: Why invest on Climate Change?,
Jan Loeys, Shiny Kundu and Mika Inkinen, 10 December 2019

The Long-term Strategist: Do BBs still offer better returns?,
Jan Loeys and Shiny Kundu, 3 October 2019

The Long-term Strategist: Buybacks and the investor, Jan Loeys and Shiny Kundu, 18 July 2019

The Long-term Strategist: What if the US joins the Zero Yield world?, Jan Loeys and Shiny Kundu, 12 July 2019

The Long-term Strategist: Climate change investing, Jan Loeys and Shiny Kundu, 30 May 2019

The Long-term Strategist: De-globalization, Jan Loeys, Shiny Kundu, and Joseph Lupton, 5 April 2019

The Long-term Strategist: Small Caps: A Strategic Overweight, Jan Loeys, Shiny Kundu and Eduardo Lecubarri, 15 February 2019

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