Finance

Is the global housing slump over?

Published

1 year ago

June 12, 2023

In Australia house prices have risen for the past three months. In America a widely watched index of housing values has risen by 1.6% from its low in January, and housebuilders’ share prices have done twice as well as the overall stockmarket. In the euro area the property market looks steady. “[M]ost of the drag from housing on gdp growth from now on should be marginal,” wrote analysts at JPMorgan Chase, a bank, in a recent report about America. “[W]e believe the peak negative drag from the recent housing-market slump to private consumption is likely behind us,” wrote wonks at Goldman Sachs, another bank, about South Korea.

Economists had expected a house-price bloodbath. In March 2022, the month that the Federal Reserve started raising rates to combat inflation, the average value of a house in a rich country was 41% higher than five years earlier. Prices had bounced back from the financial crisis of 2007-09, then surged during the covid-19 pandemic (see chart). Since then central-bank policy rates have risen by more than three percentage points on average globally, making mortgages costlier and slowing the economy.

Global house prices have certainly come off the boil. They are 3% below their recent peak, or 8-10% lower once adjusted for inflation. This is in line with the average correction since the late 19th century. Yet this episode is different because it followed a boom during the pandemic when prices rose at their fastest rate of all time. The upshot is that real house prices remain miles above the level of 2019. Many millennials and Gen-Zers, who had dreamt that a crash would allow them to buy their first house, are no doubt disappointed.

During a typical global housing slump some countries have a torrid time. After the financial crisis Irish house prices fell by half. American house prices dropped by 20%. This time the underperformers are doing better. In San Francisco house prices are a tenth off their peak, as tech types have decamped to Florida and Texas. Yet they have stopped falling—and the average house will still set you back over $1.1m.

In Australia, where in 2020-21 house prices went bananas, they have fallen by 7%. But, as a recent auction hinted, the market is recovering. A two-bedroom bungalow in Double Bay, a greying suburb on Sydney’s harbour, recently opened at A$4m ($2.7m). It represents, the auctioneer declares, an “outstanding opportunity to come along and add a lot of value”. Translation: it needs some work. That does not deter the well-heeled crowd which jostles outside its gate—the bidding is frantic. The gavel finally drops at over A$6m.

By contrast with previous housing slumps, there is no hint that lower house prices have created financial contagion. Banks do not seem worried about a surge in bad mortgages. They have fewer risky loans and have not binged on dodgy subprime securities. In New Zealand mortgage arrears have risen, but remain below their pre-pandemic norm. In America delinquencies on single-family mortgages recently hit a post-financial-crisis low. In Canada the share of mortgages in arrears is close to an all-time low.

Nor do property woes appear to be throttling the wider economy. Weaker housing investment is dragging on economic growth, but the effect is small. In previous housing busts the number of builders declined sharply long before the rest of the labour market weakened. Yet today there is still red-hot demand for them. In South Korea construction employment has dropped slightly from its pandemic highs but now seems to be growing again. In America it is rising by 2.5% a year, in line with the long-run average. In New Zealand construction vacancies are well above historical levels.

Three factors explain the rich world’s surprising housing resilience: migration, household finances, and preferences. Take migration first, which is breaking records across the rich world. In Australia net migration is running at twice pre-pandemic levels, while in Canada it is double the previous high. Demand from the new arrivals is supporting the market. Research suggests that every 100,000 net migrants to Australia raise house prices by 1%. In London, the first port of call for many new arrivals to Britain, rents for new lets rose by 16% last year.

Strong household finances, the second factor, also play a role. Richer folk drove the housing boom, with post-crisis mortgage regulations shutting out less creditworthy buyers. In America in 2007 the median mortgagor had a credit score of around 700 (halfway decent), but in 2021 it was close to 800 (pretty good). Wealthier households can more easily absorb higher mortgage payments. But many borrowers will also have locked in past low interest rates. From 2011 to 2021 the share of mortgages across the eu on variable rates fell from close to 40% to less than 15%. Even as rates have risen, the average ratio of debt-service payments to income across the rich world remains lower than its pre-pandemic norm. As a result fewer households have had to downsize, or sell up, than during previous slumps.

The pandemic itself has played a role. In 2020-21 many households drastically cut back on consumption, leading to the accumulation of large “excess savings” worth many trillions of dollars. These savings have also cushioned families from higher rates. Analysis by Goldman Sachs suggests a positive correlation across countries between the stock of excess savings and resilience in house prices. Canadians accumulated vast savings during the pandemic; against expectations home prices have recently stabilised. Swedes amassed smaller war chests, and their housing market is a lot weaker.

The third factor relates to people’s preferences. Research published by the Bank of England suggests that shifts in people’s wants—potentially including the desire for a home office, or a house over a flat—explained half of the growth in British house prices during the pandemic. In many countries, including Australia, the average household size has shrunk, suggesting that people are less willing to house-share. And at a time of higher inflation, many people may want to invest in physical assets, such as property and infrastructure, that better hold their value in real currency. All this could mean that housing demand will remain higher than it was before the pandemic, limiting the potential fall in prices.

Could the housing bust be merely delayed? Perhaps. Some past house-price declines, including in the late 19th century, were grinding rather than spectacular. Central bankers may also be minded to raise rates or keep them high until the higher cost of money truly starts to bite. Making homeowners feel poorer is one way of getting them to cut spending, which would help trim inflation.

Yet there is reason to believe the worst is over. After reaching an all-time low last year, consumer confidence across the rich world is rising again. Households on average still have plenty of excess savings. A structural shortage of housing means that there is almost always someone willing to buy if someone else cannot. And there is little sign that people are losing their taste for home offices and weight-lifting in the attic. The housing boom may have ended, and with a whimper, not a bang. ■

Finance

California high schools will require personal finance course for graduation under new bill

Published

7 hours ago

June 28, 2024

Press Room

California high schools will require personal finance course for graduation under new bill

Beginning with the graduating class of 2031, high school students in California will be required to complete one semester of a personal finance course before receiving their diplomas.

On Thursday, Gov. Gavin Newsom signed legislation to require personal finance education for high school graduates after the state Senate and Assembly passed Assembly Bill 2927. This makes California the 26th state to require finance-related instruction for graduating high school seniors.

The standalone course, which would teach students to expand their financial literacy through topics like minimizing bank fees and managing credit scores, would be offered early as the 2027-28 school year.

“Our young people need and deserve a clear understanding of personal finance so that they can make educated financial choices and build stable, successful futures for themselves and their future families,” State Superintendent Tony Thurmond said in a press release. “By adding personal finance to our high school graduation requirements, we acknowledge that managing household finances and building financial stability are essential life skills.”

Superintendent Thurmond, who sponsored the bill, said that “every child should have the opportunity to build these essential skills before navigating adult financial choices.” The content considered for the personal finance curriculum would also include budgeting principles, investment options and consumer protection awareness.

High schoolers may be able to substitute the new personal finance course for their semester-long economics course, which is currently required for graduation throughout the state. School districts and charter schools may also provide students the option to complete a yearlong course to further expand their financial literacy.

In order to enhance the creation of this curriculum, State Superintendent Thurmond announced efforts in March to build a personal finance task force that would support the implementation of these required courses for K-12 students throughout California.

Superintendent Thurmond and the California Department of Education plan to work with education experts from the Instructional Quality Commission to develop a curriculum guide and resources, expected to be adopted in 2026.

Finance

There’s one critical part of employee wellbeing that bosses are forgetting

Published

14 hours ago

June 28, 2024

Press Room

There’s one critical part of employee wellbeing that bosses are forgetting

The cost of living crisis is weighing on employees. And as companies roll out more unique benefit offerings designed to support staffers, they should spend some time thinking about the financial benefits that workers actually want.

Two out of three U.S. employees ranked financial well-being as the top area within well-being overall in which they want support from their bosses over the next three years, according to a new report from Willis Towers Watson (WTW), an insurance services company. That beat out all other well-being subcategories, including a supportive company culture, mental, emotional, and physical health benefits, and workplace connections.

About 88% of workers are worried about covering their living costs, with 73% concerned about paying for food, 72% distressed about healthcare, 69% fretting over housing, and 66% troubled over transportation, according to the report. Around one in five American employees expect their financial situation to get worse over the next year.

In the past, retirement benefits were the main financial perk that employers would offer to their workers, Mark Smrecek, financial well-being market leader at WTW, tells Fortune. But as costs rise and workplace expectations shift, there’s been an increased emphasis on other meaningful employee benefits.

“As we look at broader lifestyle needs and concerns, the inventory on the employer side is far less equipped to serve its employee base,” he says.

Employers also seem unclear about how much workers actually prize financial well-being benefits. While 66% of U.S. workers want their employer to help them with their financial wellness over the next three years, only 23% of bosses prioritized financial wellness as an aspect of their well-being program.

When it comes to the kind of support they would like to see from employers, around 47% of U.S. workers say they want help growing their savings and wealth, according to the report. That’s followed by 35% who want help getting the most out of the benefits they already have, 33% who would like access to money in an emergency, and 21% want help managing debt. Around 21% want financial insurance, and 11% want help managing student loans.

Smrecek says that growing savings and wealth, as well as getting the most out of benefits, are two relatively traditional requests that employers are comfortable with. But others are more outside their wheelhouse.

“Providing access to money in emergencies and helping manage employee debt are two that are far more emerging from an employee demand point of view,” he says.

Smrecek adds that in addition to fulfilling workers’ specific financial benefit demands, employers need to do three things to best support staffers. He recommends bosses provide solutions that are relevant and accessible to their workforce, like financial literacy coaching and direct access to liquidity. Employers should also supplement those solutions with other less monetary-focused programs like affordable and effective healthcare plans. And companies should be proactive about connecting employees with these benefits.

“As employers look to really address the core need of the employee, how that relates to their business, and how they create value from their benefits, those aspects will drive a lot of the results that they’re looking for,” he says.

Emma Burleigh
emma.burleigh@fortune.com

Around the Table

A round-up of the most important HR headlines.

Workplace vacancies hit a record high of 19.8% last quarter, and a Moody’s report shows that the percentage of empty U.S. offices could peak at 24% in 2026. Quartz

Patagonia told 90 of its remote customer service staffers that they have three days to decide if they want to relocate to one of the company’s seven “hubs” or leave their role. Business Insider

Despite some progress in California, most U.S. businesses are opposed to passing “right to disconnect” legislation, reasoning it wouldn’t fit well with remote workers and those logging in from abroad. CNBC

Watercooler

Everything you need to know from Fortune.

Secret weapons. As more companies are trying to get workers back into the office, they’re employing sociologists, psychologists, and anthropologists to understand how staffers tick. —Ryan Hogg

Lavish living crisis. U.S. workers earning $150,000 per year are more worried about covering their bills than employees making $40,000 up to six figures, according to a report. —Eleanor Pringle

Paychecks for prosperity. China’s biggest banks have requested senior staffers to waive deferred bonuses, or even partially return their wages, to abide by the country’s new $400,000 pre-tax limit. —Bloomberg

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Finance

Philippine finance app allows transfers from US banks to GCash accounts

Published

21 hours ago

June 28, 2024

Press Room

Philippine finance app allows transfers from US banks to GCash accounts

[The content of this article has been produced by our advertising partner.]

GCash, the Philippines’ leading finance app and largest cashless ecosystem, brought the spirit of Filipino independence to overseas communities this month. From the vibrant streets of New York City to the sun-kissed shores of California and the cosmopolitan hub of Dubai, GCash connected with Filipino communities to celebrate a mutual heritage and foster stronger ties with the Philippines.

GCash took part in Philippine Independence Day celebrations in New York City, California and Dubai, where it shared important new developments that aim to make digital financial services more accessible and efficient for Filipinos living and working outside their home country.

“At GCash, when we say that ‘finance for all’ is our vision, it means we are driven to go beyond the Philippines and reach as many Filipinos as we can around the globe,” says Paul Albano, general manager, GCash International. “We are honoured to join our community in this distinctly Filipino celebration, and we’re eager to share all the ways GCash has been continuously innovating and enhancing our services to meet the needs of our kababayan [fellow Filipinos] overseas.”

As GCash continues to expand its reach, Filipinos worldwide can look forward to more responsive services, greater financial empowerment and connectivity – bridging the gap between continents and reinforcing the bonds of community and culture.

GCash International general manager Paul Albano says that through the company’s expansion overseas, members of the Filipino community will be able to take better control of their finances and send money home to their family and friends more conveniently.

Coast-to-coast celebrations

This year’s Philippine Independence Day celebrations in the US – marking 126 years of liberation – included a June 2 parade in New York City – the largest outside the Philippines. The Philippine Independence Day Council Inc. (PIDCI), a non-profit umbrella organisation of the National Federation of Filipino-American Associations up and down the US East Coast, hosted the event. Now in its 34th year, the parade has grown to become an annual celebration of Filipino culture and a display of national pride, strengthening familial and community ties.

At a booth set up during a street fair in New York City celebrating independence, GCash showcased its partnerships with financial institutions such as Meridian, an instant payment technology company headquartered in New York. The collaboration effectively synergises US-based financial services and the mobile wallets that have become part of daily life across the Philippines.

On June 8, over on the US West Coast, the city of Carson, California held a day of festivities for its own Philippine Independence Day celebrations. The community event, held at Veterans Park, featured food booths, a parade and cultural presentations – all showcasing Filipino culture, as well as offering individuals the opportunity to come together with family and friends.

GCash also set up booths to share the latest updates about its financial services, including its international expansion and its position as a seamless digital financial solution for Filipinos overseas. The app is now available for download in the US using a US mobile phone number. Cashing in and sending money have been made easier and more convenient through direct cash-ins.

GCash booths in the city of Carson, California, with attendees learning about the company’s fintech solutions via its app, as well as its recent partnership with Meridian.

Collaboration enables international transfers

GCash’s partnership with Meridian has enabled the direct in-app transfer of American-based user funds from more than 12,000 banks to GCash accounts. Upon cash-ins, which come with a US$1 fee per transaction, the service automatically converts dollar amounts into Philippine pesos, with competitive foreign exchange rates.

“At GCash, we want to help with the most important thing for our countrymen abroad: how they can care for their families and maintain connections with their loved ones despite the distance,” Albano says. “With GCash’s international expansion, this is exactly what we are doing. We’re making it possible for Filipinos overseas to take better control of their finances, and sending money to the Philippines is more convenient with our competitive rates.”

Celebrating Philippine-UAE partnerships

In the United Arab Emirates (UAE), the Filipino community gathered at the Independence Day celebrations held at the Dubai World Trade Centre. The event, which featured cultural presentations and tributes to Filipino traditions, celebrated the continuous contributions of overseas Filipinos towards nation-building efforts between the two countries. It also honoured 50 years of diplomatic relations between the UAE and the Philippines.

At the event’s bazaar, GCash showcased its global expansion efforts to Filipinos who have made a second home in the UAE, sharing its latest innovations that aim to empower members of the Filipino community working overseas by giving them more control of their finances via the app.

GCash staff and brand ambassadors showcase the company’s latest innovations and international expansion drive to the Filipino community at the 126th Kalayaan 2024 celebrations held at the Dubai World Trade Centre.

International expansion to reach millions of Filipinos overseas

GCash announced in March that it has expanded its international reach and fully launched its global push following approval from the Bangko Sentral ng Pilipinas, the central bank of the Philippines, in 14 territories. Users in the US, Canada, Italy, the UK, Australia, Japan, the UAE, Qatar, South Korea, Taiwan, Hong Kong, Spain, Germany and Singapore can now use international mobile numbers to sign up for the GCash app. Approval for Kuwait and Saudi Arabia is expected to follow in the second half of this year.

With its expansion outside the Philippines, GCash is able to serve and empower more Filipinos, wherever they may be based. In addition to free real-time money transfers between GCash wallets for convenient access to funds, as well as the ability to buy prepaid credits for loved ones back home, GCash users abroad can now directly pay their bills, including utilities, tuition fees and government bills such as taxes, as well as making payments to more than 1,900 Philippine merchants.

To access GCash outside the Philippines, users with an active international SIM card can download the app from Google Play, App Store or Huawei AppGallery.

To find out more about GCash, click here.