US house price jump at fastest rate in seven years

Prices for single-family homes across the US increased 12 per cent in the third quarter, the biggest annual jump in seven years, according to the National Association of Realtors.

The cost of housing is rising across the country, adding to affordability concerns as millions of Americans lose income during the pandemic. Prices rose from a year earlier in all 181 metropolitan areas measured by the group, and 117 regions had double-digit gains, compared with only 15 in the second quarter, according to a report on Thursday.

Mortgage rates near record lows have fuelled a surge in demand, pushing buyers to compete for a scarce supply of listings. Many are rushing to the suburbs, looking for extra space to quarantine in comfort – searches that are likely to intensify now as Covid-19 infections soar to the highest levels in months. Unless borrowing costs fall much further, first-time buyers will increasingly be priced out of home ownership.

“Favourable mortgage rates will continue to bring fresh buyers to the market,” said Lawrence Yun, chief economist for the association. “However, the affordability situation will not improve even with low interest rates because housing prices are increasing much too fast.”

The average rate for a 30-year mortgage climbed to 2.84 per cent, up from a record-low 2.78 per cent last week, government-sponsored homes loans company Freddie Mac said on Thursday.

The nationwide median price of a single-family home in the quarter was $313,500, according to the association. The 12 per cent year-on-year increase was the largest since the third quarter of 2013, when prices jumped 12.4 per cent.

Fairfield County, Connecticut – home of enclaves like Greenwich, as well as Bridgeport, one of the state’s poorest cities – had the biggest increase in prices, with 27.3 per cent. Following were Crestview, Florida; Pittsfield, Massachusetts; Kingston, New York; Atlantic City, New Jersey; and Boise, Idaho.

At the end of the quarter, 1.47 million previously-owned homes were available for sale in the US, 19.2 per cent fewer than a year earlier. It would take just 2.7 months to sell those homes at the current rate of deals.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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