The Unassuming Economist

From Adam Tooze:

“In this precarious moment – in the fourth quarter of 2022, two years into the recovery from COVID – of all the forces driving towards an abrupt and disruptive global slowdown, by far the largest is the threat of a global housing shock.

There was some anxiety even before 2020 about escalating house prices in hot spots around the world, but the pandemic delivered an unprecedented jolt to housing markets. In 2020 and 2021 house prices surged, causing the IMF to sound the alarm in its October 2021 Financial Stability Report.

In the second half of 2021 inflation accelerated due to supply shocks and in 2022 that surge broadened. With interest rates being pushed up with unprecedented speed, the question now is whether after the unprecedented shutdowns of 2020 and the rapid rebound of 2021, the winter of 2022-3 will see the beginning of a global housing crash. If this were to occur, the impact would be huge.

In the global economy there are three really large asset classes: the equities issued by corporations ($109 trillion); the debt securities issued by corporations and governments ($123 trillion); and real estate, which is dominated by residential real estate, valued worldwide at $258 trillion. Commercial real estate ($32.6 trillion) and agricultural land add another $68 trillion. If economic news were reported more sensibly, indices of global real estate would figure every day alongside the S&P500 and the Nasdaq. The surge in global house prices in 2019-2021 added tens of trillions to measured global wealth. If that unwinds it will deliver a huge recessionary shock.”

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