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.”

Continue reading here.

From the Financial Times:

“At the end of 2021, things looked rosy for the global housing sector. Across the 38 countries in the OECD, house prices were growing at the fastest pace since records began 50 years earlier.

Analysis of data from Oxford Economics, a consultancy, shows a similar trend. In 41 countries, from Norway to New Zealand, house prices were rising, bolstered by record low borrowing costs and buyers with savings to spend. Arguably, there had never been a better time to own a home.

Not even a year later, and the picture is completely different. While homeowners around the world are reckoning with increasingly unaffordable mortgage payments, prospective homebuyers are facing house prices that are rising faster than incomes. In the background, a global cost of living crisis deepens.

What has changed, of course, is the spectre of rising prices and the economic shock of Russia’s invasion of Ukraine.

This fuelled a surge in inflation — now at multi-decade highs in many countries — which prompted central banks around the world to sharply tighten monetary policy. The OECD also predicts that real-term wages are likely to fall next year.

The upshot is that a pandemic-induced housing boom in the world’s richest countries is likely to be followed by the broadest housing market slowdown since the financial crash. This, in turn, could add further pressure on to flagging economies.”

Continue reading here.

On cross-country:

• Epic Housing Booms Meet Their Match in Australia, Canada, New Zealand. After multiyear surges for homeowners, property prices are at particular risk – Wall Street Journal

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

• Fed Sees Risk of Big Declines in Still-Lofty US House Prices. Home prices could be ‘particularly sensitive’ to shocks: Fed. Liquidity in Treasury market is ‘strained,’ Fed says – Bloomberg
• Black Knight Mortgage Monitor: Home Prices Declined in September; Down 2.6% since June. Worst 3-month Decline in Prices since early 2009 – Calculated Risk
• Mortgage Activity Remains Low Due to Market Uncertainty – NAHB
• Housing and Inflation. Mortgage Rates declined Sharply Today – Calculated Risk

On the US—other developments:    

• Older, White and Wealthy Home Buyers Are Pushing Others Out of the Market. The share of first-time buyers fell to 26 percent, plummeting to the lowest level in four decades, when a real estate trade association began tracking such data. – New York Times
• Home Buyers Are Moving Farther Away Than Ever Before. Rural areas and small towns rise in popularity as remote workers seek opportunity in more affordable communities – Wall Street Journal
• US Homeowners Have a Fat Equity Cushion for Real-Estate Downturn. Foreclosure wave unlikely even for distressed owners: Attom. Almost half of mortgage borrowers have at least 50% equity – Bloomberg
• The Affordable American Home is What it Used to be, and That’s a Big Problem – Wall Street Journal
• Realtor.com Weekly Inventory Up 40% Year-over-year; Now Above Same Week in 2020 – Calculated Risk
• US Housing Hit by Spiraling Mortgage Rates as Inflation Persists. Tighter central bank policy is taking a toll on building activity and sales. – Bloomberg
• The Housing Market Is Worse Than You Think. Buyers, sellers and renters are in for more twists and turns, as soaring mortgage rates and stubborn inflation signal belt tightening ahead. – New York Times
• Housing Supply and Liquidity in the COVID-19 Era – FHFA
• 1st Look at Local Housing Markets in October. Another significant step down in sales – Calculated Risk
• New Home Cancellations increased Sharply in Q3. “Significant shift in market conditions” – Calculated Risk
• Homebuilder Comments in October: “As negative as I’ve seen”. “October was the worst sales month in 12 years. No buyers, no sales.” – Calculated Risk
• Unsurprisingly, Housing Affordability Continues to Fall – NAHB
• Redfin Shuts Home-Flipping Business, Lays Off 13% of Staff in Slumping Housing Market. CEO says Redfin has tied up hundreds of millions of dollars in houses that ‘you yourself wouldn’t want to own’ – Wall Street Journal

On other countries:  

• [Australia] Distressed housing sales rise as owners succumb to Australia’s rising interest rates. Buyers who overpaid for properties in boom market conditions now feeling the pinch, head of property investor group says – The Guardian
• [Australia] Australia’s rental housing is a national disgrace – and improving it will combat the energy crisis. Making rental properties more energy efficient (and liveable) will free up power for other users – The Guardian
• [Canada] Toronto Home Price Slide Slows With Sellers Holding Tight. Benchmark prices in Canada’s biggest city down 17.7% from peak. New listings fall to their lowest level for October since 2010 – Bloomberg
• [Canada] Canada’s Slumping Housing Market Weighs on Home Capital’s Loans. Alternative lender reports plunge in mortgage originations. Borrowers continue to pay, keeping non-performing loans low – Bloomberg
• [Germany] German Mortgage Rates Hit Highest Level in Decade on ECB Hikes – Bloomberg
• [Korea] Korea Unveils $7 Billion in Financing for Property Market. Nation’s credit market has suffered one of worst routs ever. Project finance under scrutiny after default by a developer – Bloomberg
• [New Zealand] New Zealand Homebuyers in Denial as Beach Allure Beats Rising Oceans. New Zealand’s dramatic coastline is hugged by some of the nation’s most expensive real estate — properties that show no sign of losing their value even as sea levels rise, flooding increases and insurance retreat begins. – Bloomberg
• [Norway] Norwegian House Prices Extend Slide as Interest Rates Lifted – Bloomberg
• [Sweden] Swedish House Price Slide Deepens in Test of Vulnerability – Bloomberg
• [United Kingdom] Sunak vows to protect mortgage holders but says he can’t ‘do everything’. Prime minister declares inflation ‘number one enemy’ and promises to rebuild trust in government – The Guardian
• [United Kingdom] UK House Price Dip to Push Young Homeowners Into Negative Equity. First-time buyers may struggle to cover costs, think tank says. Lloyds predicts British house prices will drop by 7.9% in 2023 – Bloomberg
• [United Kingdom] Stamp duty receipts hit record high as UK property market starts to cool. Buyers deliver £3.6bn to Treasury in third quarter, but analysts warn on drop in house prices – FT 
• [United Kingdom] UK house prices stall as mortgage rate rise fuels caution. The drop follows two years of growth, although property professionals recorded some regional variation – The Guardian
• [United Kingdom] UK house-buying demand falls at fastest pace since 2020 lockdown. Survey shows one of the largest drops in more than two decades as mortgage rates rise – FT  

From Noah Smith:

“Ed Prescott, who was in some ways the father of modern macroeconomics, passed away recently at the age of 81. I thought this would be a good idea to write about the state of macro as a science. I used to write about this a lot when I first started blogging, so it’s a fun topic to revisit.

Macroeconomics has a bad reputation. I often see people whom I like and respect say stuff like this about the field of economics:

When they say this, I’m pretty sure they aren’t talking about the auction theorists whose models allowed Google to generate almost all of its ad revenue. And I’m pretty sure they aren’t talking about the matching theorists whose models improved kidney donation and saved countless lives. When people say “economists are still struggling to predict the last recession”, they’re talking about macroeconomists — the branch of econ that deals with big things like recessions, inflation, and growth.

It isn’t just pundits and commentators who are annoyed with the state of macro; economists in other fields often join in the criticism. For example, here’s Dan Hamermesh in 2011:

The economics profession is not in disrepute. Macroeconomics is in disrepute. The micro stuff that people like myself and most of us do has contributed tremendously and continues to contribute. Our thoughts have had enormous influence. It just happens that macroeconomics, firstly, has been done terribly and, secondly, in terms of academic macroeconomics, these guys are absolutely useless, most of them. Ask your brother-in-law. I’m sure he thinks, as do 90% of us, that most of what the macro guys do in academia is just worthless rubbish.

This is much harsher than I would put it, but it hints at some of the vicious internal battles being waged in the ivory tower. And even top macroeconomists are often quite upset at their field — see Paul Romer’s (extremely nerdy) 2015 broadside, “Mathiness in the Theory of Economic Growth”.

Ed Prescott’s generation of macroeconomists came into the field intent on fixing this situation.”

Continue reading here.

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

• The Reason Home Prices Are Finally Dropping. But not everywhere. – Slate
• U.S. Mortgage Rates Top 7%, Highest in More Than 20 Years. Rate for 30-year mortgages hit 7.08%; a year ago it was just over 3%. – Wall Street Journal
• Year-over-year Pace of Rent Increases Continues to Slow. Expect YoY Rents to Slow Further in Coming Months – Calculated Risk
• First Look at 2023 Housing Forecasts – Calculated Risk

On the US—other developments:    

• How owner-occupancy regulations are contributing to the housing crisis – Brookings
• Lawler: Selected Operating Results, Large Home Builders. Cancellation Rates Increasing Sharply – Calculated Risk
• US Pending Home Sales Fall by Most in Two Years as Rates Rise. Contract signings dropped more than 10% in September. Excluding early months of pandemic, index is lowest since 2010 – Bloomberg
• The US housing market’s stagnation has gotten even worse. US mortgage rates have reached a 20-year high this week – Quartz
• The U.S. city of the future – Alfred Twu

On China:

• Japan’s empty villages are a warning for China. Beijing should take note of the risks posed by a property bubble and demographic changes – FT
• China’s Diminishing Returns – Project Syndicate
• China’s property slump continues as October prices fall. Prices in 100 Chinese cities drop for fourth straight month amid strict COVID curbs. – Al Jazeera

On other countries:  

• [Ireland] Gabriel Makhlouf: A refreshed framework for our macroprudential mortgage measures – Central Bank of Ireland
• [New Zealand] New Zealand House Prices Suffer First Annual Decline in 11 Years – Bloomberg
• [Singapore] Singapore Home Prices Jump More Than Expected as Market Holds Up. Private home values climbed 3.8% in the third quarter. City-state’s property market is defying rising interest rates – Bloomberg
• [United Arab Emirates] Dubai Homes Reasonably Priced Despite Record Surge, Emaar Says – Bloomberg
• [United Kingdom] Mortgage shock: what next for embattled borrowers? Spiralling home loan rates add to households’ cost of living pressures – FT
• [United Kingdom] UK housebuilders warn new rules and taxes will add £4.5bn to costs. Industry body says extra expense may be offset by cutting affordable housing contributions – FT
• [United Kingdom] UK House Prices Face 5% Dip Next Year on Mortgage Rate Rises. New buyers face biggest rate hit since late 1980s, Zoopla says. Buyer demand has dived by a third since mini-budget last month – Bloomberg 
• [United Kingdom] UK mortgage approvals and consumer lending fall as rising prices bite. BoE data point to slowdown in property market even before mini-Budget and households building cash buffers – FT
• [United Kingdom] UK House Prices Fall the Most Since Start of Covid Pandemic. Higher mortgage rates and political turmoil take a toll. Headwinds facing market may trigger a longer-term drop – Bloomberg
• [United Kingdom] What will happen to Britain’s mortgages? The end of cheap borrowing will make the property ladder harder to climb – The Economist
• [United Kingdom] The UK Housing Market Finally Cracked. Now What? The jump in mortgage rates is starting to feed through to falling house prices – Bloomberg
• [United Kingdom] UK house prices fall in October as borrowing costs rise. Market upheaval following mini-Budget hits property sector as household finances are squeezed – FT