The Unassuming Economist

From Conversable Economist:

“For some decades now, the world has been following the patterns of a demographic transition with life expectancies rising and birth rates falling, as we head for a world where the elderly are a much larger share of the global population. However, Matthias Doepke, Anne Hannusch, Fabian Kindermann, and Michèle Tertilt argue that it’s time for “The New Economics of Fertility” (IZA Discussion Paper #15224, April 2022). For a short readable overview of the main themes, you can check their shorter discussion at the VoxEU website (June 11, 2022).

From the abstract of the academic paper, the authors write:

In this survey, we argue that the economic analysis of fertility has entered a new era. First-generation models of fertility choice were designed to account for two empirical regularities that, in the past, held both across countries and across families in a given country: a negative relationship between income and fertility, and another negative relationship between women’s labor force participation and fertility. The economics of fertility has entered a new era because these stylized facts no longer universally hold. In high-income countries, the income-fertility relationship has flattened and in some cases reversed, and the cross-country relationship between women’s labor force participation and fertility is now positive.

A couple of pictures may help, here. It used to be that countries with higher incomes had lower fertility rates, but among high-income countries, this pattern no longer holds. Here’s a figure taken from the VoxEU overview. The top panel shows that within the group of high-income countries in 1980, countries with higher per capita GDP had lower fertility, but by 2000, countries in this group with higher per capita income had higher fertility.”

Continue reading here.

On cross-country:

• Newsletter on credit risk: real estate and leveraged lending – BIS
• Beyond China: Here Are the Next Real Estate Markets to Drop – Barron’s
• Where Should Affluent People Live? it’s not a simple question – Freddie deBoer

On the US:    

• Zillow Sees Slowing Demand for Ads in Housing Downturn. Shares fall after earnings forecast misses analyst estimates. Piper Sandler’s Champion says it’s ‘rough’ in real estate now – Bloomberg
• Zillow economists: Here’s the home price shift coming for your local housing market in 2023 – Fortune  
• Soaring rent prices have advocates calling on White House to intervene. A coalition of tenant unions, community organizations and legal groups is calling on the Biden administration to launch a full government response to lower rent inflation. – Washington Post
• How big is the housing shortage? – Market Urbanism
• The Snowballing US Rental Crisis Is Sparing Nowhere and No One. Renters across cities and income brackets are struggling to find new homes or pay for the ones they already live in. – Bloomberg
• Housing Affordability Falls to Lowest Level Since Great Recession – NAHB
• Lumber Futures Hit Two-Week High as Canada Cuts Wood Output. West Fraser shutters 2.5% of its North America capacity. Lumber prices may have reached bottom for now, analyst says – Bloomberg 
• Housing Solutions Matchmaker Tool – National Association of Counties
• A Quick Note on the GNM – GSE Early Delinquency Gap – Recursion
• Current State of the Housing Market – Calculated Risk
• Mortgage Rates Swing Back Up, Hitting 5.22% in Volatile Market. Housing market is becoming more balanced, Freddie Mac says. Mortgage rates increase for first time in three weeks – Bloomberg  

On China:

• China’s mortgage boycotts are a symptom of a broader crisis. The real threat to developers is falling sales – The Economist
• China Property Woes Spark Longest Mortgage Debt Halt Since 2015. Sales of residential mortgage-backed notes set for record drop. Plummeting home sales, developers’ cash crunch weaken demand – Bloomberg
• China property crisis: Why homeowners stopped paying their mortgages – BBC

On other countries:  

• [Australia] Why soaring rates are not scaring off property investors. Rising rents and record-low vacancy rates are attracting buyers seeking higher yields and long-term capital growth. – Financial Review
• [India] India’s Top Mortgage Lender Signs ‘World’s Biggest’ Social Loan. HDFC completes $1.1 billion loan to finance affordable housing. HDFC prices social loan at margin of 90 basis points over SOFR – Bloomberg
• [India] Insecure property rights and the housing market: Explaining India’s housing vacancy paradox – Journal of Urban Economics
• [New Zealand] New Zealand House Prices Fall for First Time in 11 Years – Bloomberg
• [Sweden] Stockholm Apartment Prices Fall Most Since Pre-Covid Era – Bloomberg
• [United Kingdom] UK House Prices Fall for First Time in a Year as Crisis Bites. Buyers feeling the effects of inflation, higher mortgage costs. Strain set to worsen as BOE steps up fight on rising prices – Bloomberg
• [United Kingdom] Mortgage misery for millions following rate rise. 40% of fixed-rate deals will end this year, exposing borrowers to higher costs – FT
• [United Kingdom] London tenants facing ‘increasingly unaffordable’ rents. Shortage of accommodation results in private landlords and agents demanding that applicants bid to secure property – FT
• [United Kingdom] Mortgage wake-up call for middle classes. Rising interest rates could cost some borrowers more than rising energy bills – FT
• [United Kingdom] UK Residential Market Survey – RICS

From Market Urbanism:

“Two teams of researchers recently released estimates of the U.S. housing shortage – and they differ by a factor of five. Is the national shortage 20 million homes or just 4 million? With a range that big, both published by pro-housing groups, you’d be forgiven for thinking this is an exercise in futility.

But look under the hood and each estimate is asking and answering a different question. Together they offer a useful parallax on the current cost crisis. To oversimplify, here’s how I’m thinking about the studies:

• America needs to find space for about 4 million more households.
• City housing deficits add up to about 20 million dwellings, but the total is less than the sum of the parts.
• If we deregulated everywhere, high-priced places would build much more housing than Up For Growth predicts. And moderate-priced places would build much less housing than the JEC predicts.

JEC: 20 million

The easier report to understand is that produced at the Joint Economic Committee by the classically-named duo Kevin Corinth and Hugo Dante, the latter a GMU/Mercatus alumnus. They use a straightforward supply and demand framework with some simple, defensible assumptions about the housing production function and the demand curve within each county.”

Continue reading here.

From a NBER paper by Zhiguo He & Wei Wei:

“China’s financial system has been integral to its spectacular economic growth over the past 40 years. We review the recent literature on China’s financial system and its connections to the Chinese economy based on the categories of Aggregate Financing to the Real Economy (AFRE), a broad measure of the nation’s yearly flow of liquidity accounting for unique features of China’s financial system. While early work on China’s financial system emphasizes the state-owned enterprise (SOE) reform, the recent literature explores other more market-based financing channels—including shadow banking—that grew rapidly after 2010 and have become important components of AFRE. These new financing channels are not only intertwined with each other, but more importantly often ultimately tied back to the dominant banking sector in China. Understanding the mechanisms behind these channels and their intrinsic connections is crucial to alleviate capital allocation distortion and mitigate potential systemic financial risk in China.”

From a NBER paper by John H. Cochrane:

“The fiscal theory states that inflation adjusts so that the real value of government debt equals the present value of real primary surpluses. Monetary policy remains important. The central bank can set an interest rate target, which determines the path of expected inflation, while news about the present value of surpluses drives unexpected inflation. I use fiscal theory to interpret historical episodes, including the rise and fall of inflation in the 1970s and 1980s, the long quiet zero bound of the 2010s, and the reemergence of inflation in 2021, as well as to analyze the gold standard, currency pegs, the ends of hyperinflations, currency crashes, and the success of inflation targets. Going forward, fiscal theory warns that inflation will have to be tamed by coordinated monetary and fiscal policy. I thank Erik Hurst, Ed Nelson, Nina Pavcnik, and Timothy Taylor for helpful comments.”