The Unassuming Economist

The IMF’s latest report on Kosovo says:

“With strong growth in property lending (beyond mortgages, this includes commercial and residential construction loans, consumer credit used for housing finance, suppliers’ credit) amid signs of a supply overhang in the capital, the authorities should closely monitor the market and develop a housing price index or create a centralized registry of property valuations to convey the price signal of the property market.”

From Conversable Economist:

“If carbon capture and storage was cheap and easy, it would be a technological fix for the issue of climate change. It’s not that simple, of course. But along with a range of other technologies and policies, carbon capture and storage can be part of the answer. In the Global Status of CCS 2018, the Global CCS Institute provides an overview of this technology (download requires free registration). The tone of the report is boosterish and upbeat about the technology–but it’s also full of facts and case studies and background about efforts currently underway.

Here are some main points:

When the Intergovernmental Panel on Climate Change develops scenarios for how the world economy limit carbon in the atmosphere in the next few decades, a major expansion of carbon capture and storage is baked into those forecasts. 

“In October 2018, the Intergovernmental Panel on Climate Change (IPCC) released its highly anticipated Special Report on Global Warming of 1.5 °C (SR15), reinforcing the role carbon capture and storage technology must play in beating climate change. … Significantly for CCS, it made the point that any remaining emissions would need to be balanced by removing CO2 from the air. CCS was acknowledged in three of all four pathways IPCC authors used to reach 1.5°C and was singled out for its ability to: `play a major role in decarbonising the industry sector in the context of 1.5°C and 2°C pathways, especially in industries with higher process emissions, such as cement, iron and steel industries.'”

There are a number of reasonably large-scale CCS facilities in operation, but they have naturally tended to pick the approaches that are already cost-effective. The question is whether CCS will spread into a much broader array of uses. 

There are now 43 commercial large-scale global CCS facilities, 18 in operation, 5 in construction and 20 in various stages of development. … The first-of-a-kind commercial CCS facilities addressed in this report have already been in operation for years, mostly in industrial applications. They are “low hanging fruit”  in terms of deployment – natural gas processing, fertiliser, ethanol production where CO2 capture is an inherent process of productions. There is still a swathe of industrial applications crying out for CCS application. There is also a wave of new innovations such as hydrogen with CCS, direct air capture, CCS hubs and clusters that need to be deployed. …”

Continue reading here.

From The Economist magazine:

“They perform far better when forecasting growth years than downturns

SOME INVESTORS worry that America will face a recession in the next few years, after one of the longest expansions on record. Stock indices have fallen by 10% since early October. Yields on short-term government bonds exceed those of some longer-dated ones, often a harbinger of a downturn. Despite this, economic forecasters project GDP growth of about 2% in 2020.

How much confidence should one have in these predictions? For the past 20 years The Economist has kept a database of projections by banks and consultancies for annual GDP growth. It now contains 100,000 forecasts across 15 rich countries. In general, they fared well over brief time periods, but got worse the further analysts peered into the future—a trend unsurprising in direction but humbling in magnitude. If a recession lurks beyond 2019, economists are unlikely to foresee it this far in advance.

Economies are fiendishly complex, but forecasters usually predict short-term trajectories with reasonable accuracy. Projections made in early September for the year ending four months later missed the actual figure by an average of just 0.4 percentage points. Errors rose to 0.8 points when predicting one year out. But over longer horizons forecasts performed far worse. With 22 months of lead time, they misfired by 1.3 points on average—no better than repeating the previous year’s growth rate.

 

The biggest errors occurred ahead of GDP contractions. The average projection 22 months before the end of a downturn year missed by 3.7 points, four times more than in other years. In part, this is because growth figures are “skewed”: economies usually expand slowly and steadily, but sometimes contract sharply. As a result, forecasters seeking to predict the most likely outcome expect growth. However, they adjust too slowly even once bad news arrives, says Prakash Loungani of the IMF. That suggests they are prone to “anchoring”—over-weighting previous expectations—or to “herding” (keeping their predictions near the consensus).”

Read the full article here.

A separate article from Bloomberg says that:

“Recession Signs Hard to Miss If Stock Message Is Taken Seriously

Prices bounce around, emotion obscures logic, signals appear and vanish. The reasons for treating equities as a poor barometer for the economy are many. Right now, that might be for the best.

Pools of gloom await anyone looking for a message in stocks. There’s the $3 trillion in value erased, the bloodbath in banks and the trouncing in transports. In wonkier circles, shrinking valuations and negative rolling returns have started to ring the recession bell. A relatively calm week in the Dow Jones Industrial Average just ended with a 495-point thud.

It’s a pastime on Wall Street these days to look at the carnage, add it all up, and announce that the market is wrong. But what if it’s not? After all, even if equities have predicted “nine of the last five recessions,” as the economist Paul Samuelson famously said, that’s a better record than a lot of humans.

(…)

Sure, markets overshoot, and sentiment gets carried away. Corrections like this one have occurred six other times since the bull market began in 2009. They all sparked growth scares. But none of them a recession.

“The market is wrong,” said Anik Sen, global head of equities at PineBridge Investments. “Clearly it has been a slowdown, but the slowdown can be very transitory in our view. At the end of day, there is enormous pent-up demand, whether it’s capex or technology spending. None of that has changed.”

Still, anyone heeding strategist calls shouldn’t forget Wall Street’s propensity to lean bullish. Over the past two decades when stocks suffered two bear markets, professional forecasters have never once predicted a down year. Economists don’t see one now, either. Eighty-nine surveyed by Bloomberg generate an average prediction of 2.6 percent growth in gross domestic product next year.

Meanwhile, a 2014 study by Prakash Loungani of the International Monetary Fund found that not one of 49 recessions suffered around the world in 2009 had been predicted by the consensus of economists a year earlier. Loungani previously reported that only two of the 60 recessions of the 1990s had been anticipated a year in advance.”

Read the full article here.

Also, see a related note on “There will be growth in the spring”: How well do economists predict turning points?

On cross-country:

• Global House Price Index-Q3 2018 – Knight Frank
• Border Effects in House Prices – Real Estate Economics

On the US:

• Special Issue: The Appropriate Role of Government in U.S. Mortgage Markets – Federal Reserve Bank of New York
• Shiller Hystericizes The US Housing Market – EconoSpeak
• Minneapolis 2040: The most wonderful plan of the year – Brookings Institute
• Minneapolis, Tackling Housing Crisis and Inequity, Votes to End Single-Family Zoning – New York Times
• Income Inequality, Mortgage Debt and House Prices – London School of Economics
• More Than a Third of American Households Were Cost-Burdened Last Year – Harvard Joint Center for Housing Studies
• Risk is building in the housing market – American Enterprise Institute
• Connecting the dots on home builder performance – American Enterprise Institute
• Homelessness Rises More Quickly Where Rent Exceeds a Third of Income – Zillow
• Progressive Minneapolis Just Passed One of the Most Deregulatory Housing Reforms in the Country – Reason
• Housing Sentiment Up Slightly on Reported Household Income Gains – Fannie Mae

On other countries:

• [Australia] The potential of new technologies to disrupt housing policy – AHURI
• [China] House prices and marriage entry in China – Regional Science and Urban Economics
• [Thailand] Thailand’s house prices rising strongly again – Global Property Guide
• [United Kingdom] Property prices where you live compared to where you work – Financial Times 

Photo by Aliis Sinisalu

From Bob Shiller on the US housing market:

On the current housing boom:

“(…) this is the United States’ third biggest housing boom in the modern era. (…) All we do know is that prices have been roaring higher at a speed rarely seen in American history.”

On possible explanations:

Low interest rates: “There is some apparent merit to this view, since these three biggest nationwide housing booms all included very low interest rates. But the market reaction to interest rates is hardly immediate or predictable. The housing market does not react as directly as you might expect to interest rate movements. Over the nearly seven years of the current boom, from February 2012 to the present, all major domestic interest rates have increased, not decreased. So, while interest rates have been low, they have moved the wrong way, yet the boom has continued.”

Economic growth: “Another explanation is simple economic growth. But, as a matter of history, prices of existing homes—as opposed to the supply of newly built homes— have generally not responded to economic growth. There was only a 20% increase in real prices of existing homes in the 50 years from 1950 to 2000 despite a sixfold increase in real GDP.”

Return to normal: “The simplest narrative being given for the current boom is just that the 2008-2009 financial crisis and the so-called Great Recession are over and home prices are returning to normal. But that explanation does not cut it either. In September they were 11% higher than at the 2006 peak in nominal terms, and almost as high in real terms. This is not a return to normal, but a market that appears to be rising to a record.”

President Trump: “It is difficult to assess the contribution of President Trump to the current boom. (…) The Trump administration’s attitude toward housing is less clear. President Trump’s slogan “Make America Great Again” has overtones of the “American dream.” But provisions of his Tax Reform and Jobs Act of 2017 were unfriendly to homeowners.”