Trends that have been at play for years in the making are seen to be exacerbated in recent months, driven by the new norm of a world living due to COVID-19. Whether in residential real estate or in the office sector, we see that investors and developers alike are exploring new options in real estate investment, including a shift away from big cities.
The economy as a whole seems to be picking up, with experts expecting a rebound in the third quarter after the first recession in over a decade. With loose monetary policies supporting economies and mortgage rates at records lows, we see money supply growing and higher home sales prices in the market, although it still stands that fiscal policy support remains vital to support economic growth.
What caught our eyes this week?
Pandemic trends brewing for years in residential real estate
In depth review of current trends in the global residential markets reveals how shifts have been underway long before anyone has heard the term "social distancing". Head of US Real Estate at UBS's Chief Investment Office, Jonathan Woloshin, shares how residents and some business owners have been leaving high-priced, heavily-taxed states (from New York to California) for secondary markets as early as in 2010. Stephen Moroukian, head of product and proposition for Barclays Private Bank also highlights the same trends in the UK, with the outbreak accelerating although not considered to be the initial drive for the shift from London into the country.
Good Deals vs Good Locations
The location for residential property that people are paying may no longer be worth the price in big cities in the states. Within NYC, trendy neighbourhoods that had been on buyers' wish lists go down that list with nightlife closed and work or school commutes no longer a factor for the coming months. This has paved the path for higher square footage and better amenities in towns that would not have been an option pre-COVID.
However, the stability that big cities offer may make this shift a temporary phase, with continued sales in cities like London throughout the pandemic signalling that this bubble of 'location-irrelevant' buying may eventually burst. While the crave for proximity may kick in as more businesses, offices, and schools reopen, for now, those willing to make a move, whether to a new neighbourhood, city, or state, are getting some very good deals.
Global economy heading for a rebound
Since the Global Financial Crisis 11 years ago, the global economy has not seen a decline like the one we have had this second quarter, with quarter-over-quarter real GDP decline at about 7%. This decline, driven by reduced consumption resulting from forced closures of businesses by government edict and operations restricted to a limited capacity coupled with consumers avoiding activity for fear of falling ill, is beginning to reverse.
However, both hard and soft data indicate that the economy is stabilising, with data released thus far strongly signalling a rebound at a robust pace as the economy snaps back. Growth during the quarter is expected to reach 7%, leaving the global GDP at about 4% below 2019 levels. With loose monetary policy remaining supportive, government spending will remain critical for plugging the hole left by the private sector in several important economies.
Mortgage interest rates hit record low for the 10th time this year
The steady decline of mortgage interest rates in the US has seen another fall this week, with rates dropping to 2.81% and 2.35% for 30-year and 15-year fixed rate mortgages respectively, according to the Freddy Mac weekly mortgage survey. Strong demand in mortgage applications amidst increased purchases are reflected in house price hikes around the country, with increases of 6-7% across homes at every price tier, save for the very low end of the spectrum where house prices only increased by 2.9%.
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