The Unassuming Economist

On the US—developments on house prices, rent, permits and mortgage:    

• Home Prices Are Overvalued but Will Decline Only Gradually – Kansas City Fed
• The housing market correction has already caused homeowners to lose $2.3 trillion – Fortune
• The housing market correction just took a new turn – Fortune
• As the Decade Long Home Price Boom Ends and a Major Home Price Correction Begins, the Impact Will Vary as Metro Areas Are Buffeted by a Variety of Headwinds and Tailwinds – AEI
• Has Housing Bottomed? – Seeking Alpha
• The value of US homes recorded its biggest six-month drop since 2008. The Bay Area saw the biggest fall, but the market is hot in flood-prone Florida – Quartz
• First time ever more “Built-for-Rent” Units started Quarterly than “Built-for-Sale” – Calculated Risk
• Multifamily Built-for-Rent Share Rises – NAHB
• CoreLogic: “US Annual Rent Price Growth Dropped by Nearly Half in December” – Calculated Risk
• Another Pointless Government Mortgage Pricing War Begins – AEI
• The Normal Seasonal Changes for Median House Prices – Calculated Risk
• Biden Administration to Cut Mortgage ​​Insurance Costs for Lower-Income Buyers – Wall Street Journal

On the US—other developments:    

• The State of US Housing: A Roller Coaster Ride – Harvard Joint Center for Housing Studies
• How the Housing Shortage Warps American Life. Atlantic writers explain why a lack of housing makes everything worse. – The Atlantic
• Additional Declines for New Home Size – NAHB
• NAR: Existing-Home Sales Decreased to 4.00 million SAAR in January – Calculated Risk
• Existing Home Sales Continue to Fall in January – NAHB
• What Do US Growth Zones Have in Common? They Build Housing – Washington Post
• Congress Could Have Prevented 500,000 Foreclosures During The Great Recession But Chickened Out – Real Estate Decoded
• Final Look at Local Housing Markets in January. Year-over-Year: Sales Down Sharply, Inventory Increased, New Listings Down – Calculated Risk
• Missing Middle Housing Production Lags – NAHB

On China:

• Global Impact: China turns up the heat on its property sector as economy slowly rebuilds – South China Morning Post
• Chinese cities cut mortgage rates for first-time buyers to lowest since 2019 in bid to revive property market – South China Morning Post

On other countries:  

• [Australia] Australia’s housing crisis: how RBA interest rate hikes are pushing families closer to the edge – The Guardian
• [Portugal] Portugal Wants to Force Owners of Vacant Homes to Find Tenants. Move is intended to ease tensions in a tight housing market. Property owners’ group calls proposed measure unconstitutional – Bloomberg
• [Singapore] Singapore’s soaring expat rents undermine bid to oust Hong Kong as finance hub. Rising living costs damage city-state’s ambition to lure regional businesses – FT
• [South Korea] South Korea’s ‘jeonse’ rent-free renters hit by property downturn – Reuters
• [Switzerland] How Does Immigration Affect Housing Costs in Switzerland? – IZA Institute of Labor Economics
• [United Kingdom] UK property asking prices show weakest February gain on record: Rightmove – Reuters
• [United Kingdom] Britain Lacks Millions of Homes Due to Tight Planning Laws, Says Think Tank – Bloomberg
• [United Kingdom] UK’s Long Housing Boom Helped Trigger Exodus of Older Workers – Bloomberg
• [United Kingdom] Is a frozen market worse than a house price crash? UK housing downturns tend to live long in the memory, but a period of stagnation could be even more painful – FT

Presented at IHA Global Meetings 2023.

Global property’s goody-two-shoes are in trouble

“A housing crash sent the global economy into recession between 2007 and 2009. But three countries—Australia, Canada and Sweden—cruised through the commotion. Even as property prices plummeted elsewhere, all three recorded double-digit growth.” read more here.

The latest release of the S&P CoreLogic Case-Shiller Indices showed that cities in Florida reported the highest annual house price gains among the 20 cities covered by the indices. Miami led the way with a 18 ½ % increase, closely followed by Tampa with a 17% percent increase.

A new NBER Working Paper “Florida (Un)Chained” by Charles W. Calomiris and Matthew S. Jaremski, available here, looks at Florida’s land boom and crisis of mid–1920s, which can be helpful in drawing parallels to the present. Below we present the figure 2 from their paper that depicts East Cost Railroad and Monthly Building permits by city.

The authors reach the following conclusions –

·         Florida’s unique land markets and banking system explains why developers and not just depositors suffered great losses.

·         The crisis can be explained using bounded rationality as people behaved reasonably given the information available to them. Individual agents did not invest in obtaining further information that may have led to different decisions and behavior.

·         National advertisements for Florida land led to many of these properties being purchased from a distance. Buyers did not have information regarding the extent of supply – or the quality of land. Given the lack of information on aggregate activity, supply began to exceed the potential demand. Advertisements often mentioned recent price rises to entice buyers with prospects of future returns.

·         From a banking perspective, regulators and bank examiners did not prevent hidden risks from insider lending to be built into the system. These hidden risks ended up toppling many of these banks. Some banks indulged in fraudulent activities by hiding high levels of loan risks. Figure 7 from their paper provides the ratio of real estate loans to total loans in state bank by county.

·         Will there be a crisis again and will it be different? The authors say that all crises are not alike, and they must be studied as distinct historical phenomena.