The Unassuming Economist

“Household leverage remains high, and while house price and construction growth have come off their post-crisis peaks, high valuations and excess supply in a number of housing markets are a source of vulnerability. If maintained, the ongoing moderation in the housing market suggests little need for additional macro-prudential measures but it is important to remain vigilant. Over the longer term, rethinking the role of government-backed mortgage insurance may reduce the government exposure to housing sector risks and lead to a more efficient allocation of resources,” says the new IMF report on Canada.

More specifically on house prices and valuation measures, it says “Canada’s housing market has cooled but house prices remain overvalued, although with important regional differences. Despite picking up somewhat in mid-2013, in line with renewed strength in resale activity, Canada’s house price inflation and residential investment growth have slowed. On average across Canada, house prices grew about 4 percent (y/y) in November 2013, up from 2 percent in April but about half the pace two years ago. The slowdown involved all large metropolitan areas except Calgary, particularly Vancouver (where house prices in the first eleven months of 2013 were about 3 percent lower than a year ago). Housing starts have also picked up since April 2013, but are on a declining trend: as of November 2013, their 6-month moving average was about 10 percent below last year’s peak, mainly owing to weaker construction of multiple units, especially in Ontario. Despite the downward trend in growth, a few simple indicators continue to suggest overvaluation in the Canadian housing market. In particular, house prices are high relative to both income and rents, compared to historical averages and many other advanced economies. Staff estimates that, in real terms, average house prices in Canada are about 10 percent above what would be justified by fundamentals, with most of the gap coming from the real estate markets in Ontario and Québec.” 

“Real estate prices have risen substantially over the past few years (…) However, deviation of prices from fundamentals has apparently been minimal,” according to the new IMF report on the Peruvian economy. 

Last month, the IMF’s quarterly magazine, Finance & Development, provided a panoramic view of developments in global housing markets. This report updates that article to reflect data on house prices that has come in over the past six weeks. House prices increased in 31 out of the 51 countries we monitor, keeping our overall Global House Price Index inching up.

In this report, we now provide statistics on how long the current cycle in house prices has lasted, plus a summary table on which way various housing market indicators are pointing. As before, links are provided to IMF analysis of housing market developments (new in this edition: IMF views on developments in Brazil, Denmark, Finland, Ireland, Slovenia and Uruguay) and links to private sector views.

The World Economic Forum (WEF) just released new reports on how to tackle the unemployment crisis. One report says that “contrary to what some commentators believe, current record-high unemployment rates cannot be attributed to skills mismatch. Indeed, there is no evidence that skill levels have collapsed during the crisis.”

The reports were produced by WEF’s council on employment. The first report is a short overview that lays out the council’s recommendations for tackling unemployment. It says that “Policy should act on both the supply and demand sides. A “two-handed” approach is needed.” The paper then lists specific recommendations on the demand side and the supply side also provides recommendations for employers and trade unions. The second report goes into greater detail on each of these recommendations.

The third report is a detailed study of the extent of various kinds of skill mismatches in OECD countries and what can be done about them. Some key points:

• Skills mismatch has become more prominent in the global economic crisis. However, it is primarily a structural issue and as such existed prior to the recent global economic slowdown. For the same reason, contrary to what some commentators believe, current record-high unemployment rates cannot be attributed to skills mismatch. Indeed, there is no evidence that skill levels have collapsed during the crisis.

• The economic crisis has caused a large increase in unemployment and underemployment in many advanced, emerging and developing countries. Yet, many employers still report difficulties in finding the required talent. Although employers tend to attribute these perceived shortages to skill deficits among job applicants, they are often explained by other factors, such as geographical mismatch between skill supply and demand, poor working conditions and inefficient or stringent human-resource practices. In the short term, a key driver of skills mismatch is the limited job opportunities available in many (especially advanced) economies, which are pushing many individuals to accept mismatched and lower-quality jobs. With weak demand, employers may become more particular when recruiting, as they can afford to wait for the perfect candidate or hire over-skilled workers. At the same time, firms facing difficult economic conditions may be required to reduce training and recruitment expenditures, which can exacerbate skills shortages and mismatch within the workplace. The underutilization of the skills of mismatched workers is an important policy concern, as it entails scarring effects on their future careers and may contribute to depreciation of their unused skills.

House prices “(…) appear to be dipping again,” says the new IMF report on Slovenia.