The Advisor Channel of Visual Capitalist reports that the inflation rate in many countries is now at the highest in several decades. The inflation rate is calculated through the percentage increase in the average prices of certain consumer goods and services, including housing. Prices are driven upward by high demand that could not be met due to shortages brought about by the pandemic.
The International Monetary Fund (IMF) projects that among the world’s major economies, the United States will have the highest inflation rate in 2022, reaching 3.5 percent. It is followed by the United Kingdom at 2.6 percent. Australia is close at 2.1 percent.
Global Mortgage Rates
Amid the inflated costs of almost everything, mortgage rates are also rising in many countries worldwide. In the U.S., HousingWire reported that as of February 17, the average 30-year fixed-rate mortgage was at 3.92 percent. Freddie Mac’s latest PMMS Mortgage Survey states that this is its highest from May 2019. In February 2021, it was at an average of 2.81 percent. The Mortgage Bankers Association (MBA) expects that it will reach up to four percent by year’s end. Earlier, on February 11, the Optimal Blue Index of Black Knight reflecting the secondary market showed that the average 30-year rate for mortgages insured by the Federal Housing Authority (FHA) already reached 4.122 percent. On Nasdaq, The Motley Fool stated that mortgage rates could reach 4.5 percent or higher by the end of the year.
In the U.K., Moneyfacts reports on the lowest mortgage rates as of February 17, reflecting weekly increases from 0.25 percent to 0.50 percent. For first-time homebuyers, Cumberland Building Society offers the lowest two-year fixed rate at 1.6 percent up to June 1, 2024, after which the rate goes up to 4.49 percent. It also offers the lowest five-year fixed rate at 2.15 percent up to June 1, 2027, after which the rate also goes up to 4.49 percent. Both mortgages require a 10 percent deposit and fees of £1,999.
In Australia, TheGlobalEconomy reports that the average mortgage interest rate was 3.94 percent as of January. This shows an increase from 3.7 percent in October 2021 and 3.73 percent in January 2021.
Global Housing Prices
As a double whammy, the prices of houses and lots around the world have continued to increase in 2022. In the U.S., Fortune reports that Zillow had revised its forecast upward twice since December 2021, when it predicted that home price increases would just be at 11 percent by the end of 2022. Zillow changed its numbers in January to 16.4 percent by yearend. On February 16, Zillow once again changed its forecast to a year-on-year price increase, reaching a peak of 21.6 percent in May, the highest annual increase since the 1980s and five times more than the 4.2 percent average annual rate of home price increases in the last 40 years. Zillow then predicts that home price increases will slow down to 17.3 percent by the end of the year.
The reason for the continued surge in U.S. home price increases is the worsening shortage in inventory. In January this year, the number of available homes for sale was 42 percent lower than that in January 2020. In comparison, in January 2021, it was only 26 percent below the available homes in January 2020.
In the UK, Forbes cites data from the latest Rightmove House Price Index showing that home prices in February increased by 2.3 percent or £7,785 compared to January, bringing the average housing property price to £348,804. This represents the largest monthly increase since the Index started gathering data 20 years ago.
Compared to February 2021, the annual increase in average home prices is 9.5 percent, representing the largest annual increase since September 2014. Since the pandemic started, home prices have increased by almost £40,000.
In Australia, PropertyUpdate reports on the housing prices forecasts of the four major banks. National Australia Bank (NAB) predicts a 4.9 percent increase in 2022, slowing down to four percent in 2023. Australia and New Zealand Banking Group Limited (ANZ) predicts a six percent increase in 2022, also slowing down to four percent in 2023. Westpac predicts an eight percent increase in 2022, slowing down to five percent in 2023. The Commonwealth Bank of Australia (CBA) differs in its prediction of a seven percent increase in 2022, rising further to 10 percent in 2023.
This year, people planning to buy a home need to weigh the benefits of purchasing sooner against later. As most experts predict, prices may decrease toward the end of the year, but mortgage rates may increase further. They must compute based on forecasts and see which benefits them more. If buying is at all possible, it is a much better choice than renting as rents are also increasing.