Happy New Year, everyone; we hope you enjoyed the festivities and are suitably rested and ready for 2023!
During the break, most banks published their January 2023 Investment Outlook Brochures for institutional investor clients; many will be landing on people's desks as we speak. These guides look at all elements of the financial markets. Still, for purposes of this week's blog, we are looking at a healthy cross-section of four, intending to look at specifically housing, construction, lending, and elements correlated explicitly to the p2p sector. Many outlooks match our views, and we hope this will be insightful.
JP Morgan, in their 2023 Investment publication, had a relatively calm outlook on housing; they believe there is a "low risk of deep 2008 housing-led recession'" and list many factors as to why a soft landing may be on the cards. One topic we have mentioned previously in these blogs is the supply squeeze due to construction issues led by the pandemic. Still, interestingly in their outlook, they discussed much deeper problems in construction that have stagnated supply growth over the last decade. It's a probability, not a possibility, that demand will continue to outstrip supply in 2023, and that will maintain prices. They look in depth at the American mortgage markets; in this instance, it's possible to draw some parallels with our own; the rate of retail adjustable products is around 5%, and in the UK, variable rates at the time of writing are around 9%, when we saw a substantial repricing post-2008, the UK & US figures were over 20% with significant risk exposure at much higher leverage.
Morgan Stanley, in their 2023 January outlook, also paints a relatively optimistic picture; Tony Charles, their Global Head of Research and Strategy Real Estate Investing, makes the point that even though they are seeing investor capital flow back towards fixed income, they still believe there are strong fundamentals in place that will underpin price throughout the next 12 months, one of which being embedded rental income that will protect values even in a worsening macro backdrop. They also talk about the pullback bringing in capital-ready investors looking to pick up assets where everything has stayed the same except the price or bargain hunting in layperson's terms. This compounds our viewpoint and the points we touched on in previous blogs. The popular narrative is that the accessibility of retail debt drives price appreciation, but back in 2008, the Real Estate division of a Wall St bank wouldn't have had a full page in the brochure; the money was in the derivatives, now it's in the assets, and those corporate bargain hunters could be a very sizeable group.
In their Citi Global Wealth report 2023, Citi Bank is the first to make slightly more concise predictions regarding property construction trends. They discuss the varying macro issues as the others; however, they believe that multi-family units will become a popular build type in 2023 in the US and UK and will be an opportunity for both higher investor yield and more affordable end-user rents. The focus here is rents, and one point of agreement across all of the analyses we have reviewed is that they will continue to increase, a topic we discussed in a previous blog where we explored rents no longer correlating with price & why. The aforementioned sizable group, this is the lure; real estate has become an asset class where you can increase the yield simply by buying more of it, should you be a large enough group of buyers.
Finally, we looked at the thoughts of Fidelity International, where Neil Cable, their Head of European Real Estate Investments, makes some excellent points in his analysis; he believes that Real Estate has now become so entrenched into people's portfolios, unlike in the 1990s and 2008, there is a substantial level interest to maintain demand even in a higher rate environment such as this. As a result, they are probably the most bullish on house pricing and believe that interest rate increases will taper quickly, and valuations could begin to readjust by the middle of 2023.
So to circle this back to P2P, the outlooks for the property market and assets comprising their value from its success are realistically addressed here; rather than a fair-weather approach, all of the current macro issues were seemingly taken into consideration, and the consensus is still a strong demand, a softer economic landing, and increased rental yields, in the start of what could be the post-pandemic era.
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