Mixed signals from real estate prices for central banks
General strength in residential real estate prices contrasts with pronounced weakness in commercial property prices.
One way that monetary policy works is via the impact on asset prices, where higher interest rates mechanically lower the value of assets.
However, at present, there are mixed signals for central banks from real estate prices, with general strength in residential prices – at least ahead of an anticipated rise in unemployment – and pronounced weakness in commercial property prices.
That is, as previously noted, residential real estate prices have actually rebounded in most advanced economies, suggesting that high interest rates are not a constraint on all households.
In fact, house prices in some countries are either at or near all-time highs, regardless of whether mortgagors borrow at fixed or variable rates.
In particular, house prices in the US recently rebounded to a new record high, starkly contrasting with a steep decline in commercial property prices.
That is, on the Green Street measure, commercial real estate prices in the US are down 19% from last year’s all-time high and are at their lowest level since 2016 if the COVID lows are excluded.
In Europe, there is at least some consistency in terms of direction, in that residential prices have drifted lower as commercial property prices have fallen sharply.
Residential prices, which are published with a delay in the euro area, are down about 3% from last year’s peak, while the Greet Street commercial property series for Europe is down 22% from its peak, reaching the lowest point since 2016.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy, contributing to the investment decisions of the firm. Kieran has long experience as a macroeconomist in both the private and public sectors. He has worked most recently as Chief Markets Economist for National Australia Bank and was previously Chief Economist, Australia and New Zealand, for Barclays Bank and ABN Amro Bank/RBS. Kieran also worked as Principal Adviser on the macroeconomy and budget policy in the Commonwealth Treasury and Director of Forecasting.
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Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
Based in Sydney, Kieran Davies is Chief Macro Strategist at Coolabah Capital Investments, an asset manager with 40 executives and over $8 billion in fixed-income strategies. Kieran is responsible for macroeconomic research and investment strategy,...
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