The Unassuming Economist

On cross-country:

• ECB warns of ‘exuberance’ in housing, junk bonds and crypto assets. Investors taking risks in search for yield has left markets ‘susceptible to correction’ – FT
• ECB sees rising risk that housing bubble will burst – Reuters
• The euro area housing market during the COVID-19 pandemic – European Central Bank
• As housing costs rocket, governments take aim at large investors. The approach is politically expedient, but it may not make housing cheaper – The Economist
• The oldest asset class of all still dominates modern wealth. Low interest rates in advanced countries have pushed money into real estate instead of business investment – FT
• Making Homes More Affordable in IDA Countries Through Expanded Mortgage Financing – World Bank

On the US:   

• Fannie Mae, Freddie Mac to Back Home Loans of Nearly $1 Million as Prices Soar. Scheduled increase in loan limits is a boon for borrowers but also stokes debate over government’s role in housing market – Wall Street Journal
• A Housing Gift for Beverly Hills. Just what the economy doesn’t need: subsidies for $1 million mortgages. – Wall Street Journal
• Homes Now Typically Sell in a Week, Forcing Buyers to Take Risks. Buyers are often waiving traditional safeguards in fast-moving market where median price has climbed – Wall Street Journal and Quartz
• Democrats have no plan to fight housing inflation. Home prices have skyrocketed, and the White House’s plan will do basically nothing to stop it. – Vox
• Why building more affordable housing won’t solve the crisis – Yahoo
• Housing inflation is getting worse. Will Biden’s ‘Build Back Better’ program help renters and buyers? – MarketWatch
• States can improve housing well-being through thoughtfully designed policies – Brookings
• How the Pandemic Worsened a Housing Crisis in the Bronx. In a New York City borough where residents have long struggled to afford their homes, thousands are now threatened with eviction as state pandemic aid dwindles. – New York Times
• Mortgage Refinance Costs and a Better Adjustable-Rate Mortgage Contract – Richmond Fed
• Biased appraisals and the devaluation of housing in Black neighborhoods – Brookings
• Grown Kids Still Stuck at Home? Change Is on the Horizon. Someday, surely, all the young adults still living with their parents will form their own households, creating steady housing demand. But only if prices stop going up so fast. – Bloomberg
• Want More Affordable Housing and Health Care? Here’s a Fix. – New York Times
• Despite Supply Chain Issues, U.S. Builder Confidence Upticks in November – World Property Journal
• What Went Wrong With Zillow? A Real-Estate Algorithm Derailed Its Big Bet. The company had staked its future growth on its digital home-flipping business, but getting the algorithm right proved difficult – Wall Street Journal  
• Research: Restricting Airbnb Rentals Reduces Development – Harvard Business Review

On China

• China home prices fall as property slowdown threatens economic outlook. Beijing introduced measures aimed at constraining borrowing at developers over asset bubble fears – FT
• Worst yet to come for China’s housing market as new home prices fall by most in 6 years. The average price across 70 cities dropped 0.25 per cent in October from the previous month, data shows, as analysts warn that doesn’t give the full picture. Developers are seeing a big slump in sales amid a credit crunch sparked by the debt crisis at China Evergrande – South China Morning Post
• How Wealth Products Helped Inflate China Real Estate – Quartz
• China’s real estate woes sap property investment products – Reuters
• China walks a tightrope on property clampdown – Reuters

On other countries:  

• [Canada] Housing Market Heats Back Up in Canada With 8.6% Jump in Sales – Bloomberg
• [Israel] Bank of Israel Plans to Increase Competition in Mortgage Market – Bloomberg
• [Spain] If health and education are essential services in Spain, why not housing? A renters’ movement in Catalonia is saving families from eviction and trying to fill the gap left by the state – The Guardian
• [Spain] Spain takes on private equity landlords as cost of housing soars. Blackstone and others could face rent caps in bill championed by leftwing government – FT
• [Switzerland] The Local Effects of Relaxing Land Use Regulation on Housing Supply and Rents – SSRN

In a recent column for Vox EU CEPR, Professor Daniel Waldenström of the Research Institute of Industrial Economics and senior fellow at CEPR writes about the conundrum of rapidly rising wealth-income ratios in the post-WW II period not translating into a reversal of trends of wealth concentration of the previous century.

While it is true that aggregate wealth to income ratios have risen in this period, it has not led to large-scale wealth equalization since private wealth has just changed hands over the 20th century, from being held by richer classes to now being largely held by the middle class. Previously in the 1900s, wealth was dominated by agricultural estates and corporate wealth, assets predominantly held by the rich. However, this changed in the post-war period as wealth accumulation mainly acquired the form of housing and funded pensions, which are assets held by ordinary people.

“Wealth concentration was exceptionally high a century ago, with the richest percentile owning between 50% and 70% of all private wealth. From the 1920s to the 1970s, wealth concentration fell dramatically in the Western world. Country studies confirm the importance of homeownership and pension savings for this equalisation trend. In the 1970s, wealth equalisation stopped, but then Europe and the US follow separate paths. In Europe, top wealth shares stabilise at historically low levels, perhaps with a slight increasing tendency, while in the US, top wealth shares have increased (exactly by how much is currently debated).”

Waldenström, D. (2021). Wealth and history: A reappraisal. Vox EU CEPR.

Results from this study cast influence on society’s understanding of the long-run evolution of wealth as we see it. They question the view that unfettered capitalism generates extreme levels of capital accumulation. They also cast doubt on the explanation that wars, crises, and capital taxation are necessary for wealth equalization.

Click here to read the full article.

Excerpts from a column by Professors Martin Ravallion (Georgetown University) and Shaohua Chen (Xiamen University) for Vox EU CEPR.

Ravallion and Chen’s newest paper (2021) highlights some theoretical arguments about potential trade-offs between reducing income polarisation and other valued goals, including poverty reduction, discussions on which are contained in their column for Vox EU CEPR.

“China’s well-documented success in reducing absolute poverty came, of course, with a rising share of its population living above official poverty lines (Chen and Ravallion 2021). Many of those who escaped absolute poverty joined China’s middle-class. Naturally, what this means depends on the setting. The prevailing definition of a middle-income group can be expected to change over time with rising living standards; what was considered a middle income in the China of the 1980s is clearly not the same today. “Fleshing out the olive” can be interpreted as reducing the spread of incomes relative to the current median, which may provide a more relevant reference point than a fixed absolute level of real income. 

This perspective suggests that the concept of polarisation as found in economics is relevant to monitoring China’s performance in “fleshing out the olive” and identifying potential trade-offs against other goals. And there is a measure available in the literature, namely the Foster-Wolfson (FW) polarisation index (Foster and Wolfson 2010). The greater the spread of incomes relative to the median (in either direction), the higher the FW index. What trade-offs might be found between this concept of polarisation and other goals for the distribution of income? And what does the time-series evidence suggest?”

Click here to read the full article.

From VoxEU.com by Maarten Verwey, Oliver Dieckmann, Przemyslaw Wozniak posted on 16 November 2021

“The growth outlook for the EU is for a continued economic expansion. With large shares of the population currently protected against severe COVID-19 cases and deaths (ECDC 2021), the EU economy is assumed to avoid lockdowns and to continue benefitting from the reopening momentum. As a result, the EU and the euro area, which were in the third quarter just a notch below their pre-pandemic output levels, are set to transition from recovery to expansion (Figure 1). This projection implies reaching the Commission’s extrapolated pre-pandemic forecast path within the forecast years, and approaching the pre-crisis growth trend much faster than after previous recessions. After the Global Financial Crisis in 2008-09, for example, it took the EU economy more than four years for just returning to the pre-crisis level of output. The atypical nature of the recession and the substantial policy support, including NGEU/RRF, were essential for this result.”

Continue reading here.

From Econbrowswer –

“Chinn and Coibion (2014) and subsequent analyses find futures do a fairly good job at prediction. Chinn and Coibion examined data up to 2012, for WTI, while Kwas and Rubszek (Forecasting, 2021) examined both WTI and Brent for 2000-March 2021. As noted in this post, futures improve upon a random walk for both RMSFE and direction of change at horizons up to a year.”

Continue reading here.