Housing Boom Fades Worldwide As Interest Rates Climb
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Housing Boom Fades Worldwide As Interest Rates Climb

Prices are falling in some places, raising the risk of market routs and adding to central banks’ challenges.

By Jason Douglas
Wed, Jul 20, 2022 11:49amGrey Clock 5 min

Rising interest rates are slamming the brakes on a global housing boom during the pandemic, heaping extra pressure on central banks as they try to tame inflation without triggering deep downturns in their economies.

From Europe to Asia to Latin America, residential real-estate markets are coming off the boil, and in some cases seeing home values spring, as central banks jack up borrowing costs to bring consumer-price growth to heel.

The seasonally adjusted average home price in Canada was down nearly 8% in June from a peak earlier this year. In New Zealand, prices had slipped 8% in June from their peak in late 2021. Prices in Sweden in May fell 1.6% from the previous month, the biggest monthly decline since the pandemic began.

For the world’s central banks, skimming froth from bubbly housing markets is all part of the battle to bring inflation under control. Falling house prices usually result in weaker consumer spending as homeowners see wealth evaporate, easing upward pressure on inflation. Overall economic activity should slow as construction dwindles, banks issue fewer loans and real-estate agents make fewer sales.

“We are expecting to see some moderation in housing activity. And frankly, that would be healthy, because the economy is overheating,” Tiff Macklem, governor of the Bank of Canada, said last month.

The risk, economists say, is that central banks move too aggressively, causing a global housing-market slowdown that turns into a rout, with unpredictable effects.

Countries including Canada, New Zealand, Australia and Sweden look especially vulnerable, based on metrics such as real-estate’s share of their economies, the extent of their recent booms and homeowners’ sensitivity to rapid interest-rate increases, some economists say.

Analysts say the risk of a housing blowup of the scale of the 2008-09 financial crisis is remote. Banks and borrowers are mostly in far better financial shape now.

Still, a bigger-than-expected housing downturn could mean a deeper economic slowdown than central banks are aiming for to tame inflation.

A shrinking real-estate sector means laid-off construction workers and weaker demand for steel and other commodities. Falling home prices also hurt household and bank balance sheets, which tends to weigh on other parts of the economy. In extreme cases, financial distress ensues.

Faced with those risks, some central banks may decide they can’t lift rates as much as investors currently expect. Others may even pause or reverse rate rises to prevent a real-estate bust from spreading.

“Moderate housing downturns will be tolerated as a price that has to be paid for getting inflation back down,” said Neil Shearing, chief economist at Capital Economics in London. More severe downturns, though, could trouble central banks enough to shift policy, he said.

The U.S. is still experiencing strong house-price growth despite higher mortgage rates, as fierce competition outstrips limited supply. Average home prices in the U.S. rose by an annual 20.4% in April, according to the S&P CoreLogic Case-Shiller National Home Price Index, which measures average home prices in major metropolitan areas.

Federal Reserve officials have expressed determination to bring U.S. inflation down, even at the risk of causing a recession.

Global housing prices took off in 2020 and 2021, when central banks slashed interest rates and governments spent big on keeping companies and workers afloat during the pandemic.

An index of global house prices compiled by real-estate consulting firm Knight Frank shows that prices rose 19% worldwide between the first quarter of 2020 and the first quarter of this year, or 10% after adjusting for inflation, though some markets logged much stronger appreciation.

Inflation-adjusted price growth slowed to 3.9% globally in the first three months of 2022 from a year earlier, the index showed. Over the same period, house prices fell in real terms in countries including Brazil, Chile, Spain, Finland, South Africa and India, Knight Frank research shows.

The slowdown coincides with tighter interest-rate policy across much of the world and expectations of more to come.

After earlier rate rises this year, the Bank of Canada last Wednesday raised its policy rate by a full percentage point to 2.50% and said further rate increases are necessary. Gov. Macklem has said cooling housing is essential to push inflation down from a 39-year high of 7.7% in May.

With Canada mortgage rates at their highest level since 2009, house sales in June were down 24% from a year earlier, according to the Canadian Real Estate Association.

Real-estate brokerage Realosophy said Toronto sales declined 40% in May from a year earlier and now sit at a 20-year low. The median price for a Toronto home, excluding condominiums, is down nearly 20% from a February peak.

Daniel Foch, a real-estate agent who focuses on Toronto’s suburbs, said the mood among would-be buyers is “somewhat bittersweet, because a lot of them are seeing prices come down and they’re thinking, ‘all of sudden I can afford that house.’”

The problem, Mr. Foch said, is when they seek financing. “They realize their buying power has been reduced by the same amount.”

Economists are marking down their expectations for Canada’s economy as housing, which accounted for about one-fifth of the growth in gross domestic product last year, slows.

The Bank for International Settlements, which brings together many of the world’s top central banks, said in June that it could take a while for countries such as the U.S., where most mortgages have fixed rates, to feel the effect of higher rates.

But the same isn’t true for countries where floating-rate mortgages—which adjust as interest rates rise—are more common, as they are in parts of Europe and elsewhere, according to BIS data. In Australia, 85% of mortgages are floating rate. In Poland, the share is 98%.

The Reserve Bank of Australia is currently raising interest at the fastest pace in nearly three decades. Some retreat in house prices would ease affordability problems, but economists say any hint of a coming market collapse would quickly see the RBA stop tightening policy screws.

Overstretched borrowers are a particular concern.

“These are people who have taken out their first housing loan in the last year or so or who have bought a bigger house in the past couple of years and have borrowed as much as the bank would lend them,” RBA Gov. Philip Lowe said in a recent speech.

Economists say there are some grounds for optimism over housing. The price run-up was driven primarily by rock-bottom rates and evolving consumer preferences for more space, not the loosened lending standards or excessive risk-taking that culminated in the 2008-09 crisis. Supply of homes is tight.

Healthy labor markets and pandemic stimulus programs mean many households are in decent financial shape, though inflation is eating into incomes.

“As long as the unemployment rate stays low, interest rates should be manageable for the vast majority of households,” said Sharon Zollner, ANZ Bank’s New Zealand chief economist. “You won’t have a lot of sellers who have to just take whatever the offer is on the day.”

The impact of slowing markets will still be felt, however.

In New Zealand, where home prices rose 45% over 2020 and 2021, the median house price in June was down by about 8% from its November 2021 high of 925,000 New Zealand dollars, equivalent to about $565,500.

The reversal came after New Zealand’s central bank began raising its benchmark interest rate in October, and lenders tightened borrowing standards.

Asif Abbas Mehdi, a business owner in New Zealand’s Waikato dairy-farming region, said he has been trying to sell a three-bedroom, two bathroom townhouse for four months.

Initially he sought NZ$730,000, or about $450,000, then NZ$680,000, or about $419,000. He is reluctant to go lower than that.

“If nothing happens at 680,000, I might have to pull it off the market,” Mr. Mehdi said.

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: July 18,2022



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The enduring appeal of marble has gone into overdrive as designers explore the beauty of coloured stone to create truly inviting and indulgent interiors.

By Robyn Willis
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Like all design movements, the return of marble to interiors started quietly enough with the rise of ‘greige’ as the dominant colour palette. A warm version of grey, for a while there, you could barely step into a well-considered residential space without being confronted with the ubiquitous neutral tone.

However, to be successful, this look depended on texture, layering and patterning to provide truly heartfelt spaces with genuine depth. And so Calacatta and Carrara marble entered the room, literally making itself at home in kitchens, bathrooms, and living room hearths, as well as in a myriad of accessories and furniture from small bowls and coasters to coffee and dining tables.

As greige made way for a return to colour in interiors, in recent years designers have turned their attention to bolder choices, moving on from the classic tones of Calacatta, Carrara, and Pietra marbles to Verde Indio, Spanish Gold, and Calacatta Viola.

Inspired by the raw beauty of the site, Mim Design used marble extensively in this Mornington Peninsula home Mim Design

Not that there is anything new about marble. First documented for use in construction in 3rd century Greece BCE, with evidence it was also used in ancient Turkey and Rome, it was originally chosen for its strength and beauty, as well as its accessibility, extracted from quarries using hammers and wedges and removed using pulleys, levers, and winches rather than the more difficult process of mining. While extraction methods have improved, especially in recent years, the nature of this popular stone is unchanged.

A metamorphic rock composed mostly of calcite, it is formed when limestone is subjected to heat and pressure. When the calcite in the limestone recrystallises, it forms a rock that is a mass of interlocking crystals, creating what we know as marble.

In Melbourne’s St Ali & The Queen cafe and bar, Studio Tate teamed marble and timber to transition from day to night.

While many countries, including Australia, have marble deposits, about half the world’s supply is sourced from just four countries—Spain, Italy, India, and China. Strong enough to endure extended use, it is also soft enough to be relatively easy to carve while its natural beauty allows it to be polished and honed, giving it a glow that adds depth—and a sense of luxury—to any space it inhabits.

Greg Natale marble accessories deliver on style.

Australian designers have been quick to embrace the use of marble, offering, as it does, the opportunity to create truly unique interiors. Creative director of Mim Design, Emma Mahlook, says while budget is always a consideration, a greater variety of marble has become easier to source in recent years.

“Coloured stones provide an opportunity to create distinctive and striking spaces,” she says. “As such, we are finding that there is a slight shift to bolder and braver choices of coloured stone than the traditional whites and greys.”

For homeowners interested in creating distinctive, outstanding spaces, it is hard to beat, with each piece different from the other.

“No batch of stone is ever the same, which makes it so unique and such an interesting and visually appealing product with colours, textures, and patterns that are sometimes as complex as intricate works of art,” says Mahlook.

She cites a recent commercial project her studio realised for Enoteca Boccaccio, an exclusive Italian restaurant in the heart of the Melbourne suburb of Balwyn, where she specified a selection of coloured marbles to create an intimate and luxurious dining experience that looks to the past, as well as the future.

“The choices of natural stone in Enoteca Boccaccio, which featured marbles Rosso Levanto and Carrara as well as a granite called Domino, were selected to reflect Italy’s streets and embody genuine durability and commitment to the art of preservation,” says Mahlook. “Rosso Levanto and Carrara are archaic marbles with such strong significance connecting to Italy’s rich heritage.”

Colour and Communications Manager at Dulux, Andrea Lucena-Orr, says the interest in coloured marble in Australian design has its origins in more transient hospitality spaces like bars and restaurants, where design is traditionally riskier.

“Typically, it starts in hospitality and commercial environments,” she says. “You tend to get it in high-end homes because it is expensive, but it’s beautiful.”

“That whole natural palette is a huge phenomenon—people are celebrating those imperfections in patterns and shapes now.”

Because no two slabs are the same, Mahlook says there’s the ability to create truly distinctive, personal spaces for clients seeking genuinely idiosyncratic interiors.

“The movement towards coloured natural stones reflects a broader cultural shift towards individuality, sustainability, and innovation in design and architecture,” she says.

For those falling under its spell, Director of Studio Tate, Alex Hopkins, says marble pairs well with other materials such as timber and looks beautiful indoors, particularly in kitchens and bathrooms. However, she cautions there are some things to consider before specifying it at home.

“To ensure marble remains a timeless choice rather than a fleeting trend, we recommend using it selectively and pairing it with contrasting materials,” she says. “It’s crucial to understand its maintenance demands and consider the overall budget, including installation and upkeep costs.”

While it is susceptible to staining because of its porosity, Hopkins says using marble sparingly, for example, in a powder room vanity, can minimise maintenance.

“Different finishes, like honed surfaces, can also help reduce the appearance of wear,” she says. “Working with experienced designers or specialists ensures the marble chosen fits both the aesthetic and functional needs of your space.”

Professionally applied sealants can also make staining less likely.

For those bold enough to take the plunge, Hopkins says the rewards are great.

“Its diverse colour palette and natural veining offer a unique aesthetic that other materials can’t match,” she says.

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