A Tale of Two Housing Markets

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Ethan Wu (0:36)

Thank Pushkin.

They say home is where the heart is. Well, I say home is where monetary policy transmission is. When interest rates rise, mortgage rates rise, that's supposed to put pressure on the housing market and slow the economy. But what if that doesn't happen? Today on the show, a tale of two housing markets, over here in the US and across the pond.

This is Unhedged, the Markets and Finance show from the Financial Times and Pushkin. I am reporter and renter, Ethan Wu, here in the New York studio, joined today by homeowner, Katie Martin.

Katie Martin (1:11)

Hey, Ethan, how are you going?

Ethan Wu (1:13)

Katie, how does it feel to build equity? I don't know what that feels like.

Katie Martin (1:17)

It feels really weird, because unless I want to move house and move somewhere much smaller, it makes no difference to my life. The fact that my house price has tripled in the past, 12 years or something, it's odd.

Ethan Wu (1:32)

Well, as I mentioned at the top, housing is a really important asset. It's kind of what makes the economy swing up and swing down. But the swings have been very different over here in the US and over on your side of the pond, Katie. US housing prices are going back up despite interest rates being as high as they've been in decades. But in the UK, they're going down.

What's going on, Katie? I really don't understand your strategy system, to be honest.

Katie Martin (1:51)

Well, we don't understand yours.

Yours is weird, not ours. So over here, house prices have now been falling for five months in a row.

The fastest annual pace of decline since 2009, which you may remember was not a vintage time for house price performance. No, not at all. Price is down 4.6% in August year on year. That's according to Halifax. So house prices are definitely turning lower in the UK. And ultimately, Ethan, it's all about me. It might be worth thinking about my experience here, which informs why a lot of this is happening. So I'm now fixed on a mortgage where I pay a rate of 1.5%, but not like you funny Americans that have mortgages for like 30 years or whatever it is, very odd. Ours roll over every sort of two, five years, something like that.

So when I come to roll over my mortgage and get a new one in May, it's gonna charge me a lot more than 1.5%, and that's gonna really hurt. And so interest rates are really, they're really starting to pinch at the housing market here. Now, one thing about all this is the typical UK house price is now 280,000 pounds, and that's down 14,000 pounds on a year ago, but it's still well above where we were pre-pandemic. So house prices may be coming down, but they're still extremely elevated. It's not like there's bargains out there for people who've got a bit of money down the back of the sofa. But it just goes to show you that your experience is very different to ours and that policymakers here, central bankers here in the UK, are really held back from being able to be super aggressive on raising interest rates because they know that otherwise, Muggins over here, Katie, is gonna be very poor and have nowhere to live. And that's gonna be a pattern that's repeated in thousands and thousands of households across the country.

Ethan Wu (3:45)

I'm glad you mentioned the central bank because I think that's a really critical part of the US story too. But unlike in the UK, where you guys have had falling housing crisis, we've had rising housing crisis.

Katie Martin (3:53)

You've changed this. What are you doing?

Ethan Wu (3:55)

It is staggering. When the rate increase cycle kicked off, housing prices were falling for a while, but since February, they've been rising again. And if you look at a one or two year chart of US average national housing prices, all the declines are gone. We're right back at the peak. And I think part of the story is that difference between our 30 year fixed rate mortgages and your guys' two to five year rolling mortgages.