The Unassuming Economist

A new paper “assess the spillovers from the oil sector to the housing market cycle using quarterly data for 20 net oil-exporting and -importing industrial countries, and employing continuous- and discrete-time duration models. [The paper does] not uncover a statistically significant difference in the average duration of booms and normal times in the housing markets of those net oil-importers and net oil-exporters. Similarly, the degree of exposure to commodity price fluctuations does not seem to significantly affect the housing market cycle. However, [the authors] find that housing booms are shorter when oil prices increase than housing busts when oil prices decrease. We also show that the net oil-importers are more vulnerable to protracted housing slump episodes than the net-oil exporters.”

Also see another related work on housing and oil prices.

The 2016 International Housing Association (IHA) Interim Meeting took place on November 1-4, in Durban, South Africa. The meeting brought together housing market experts from different countries to discuss and share information about their respective housing markets. The countries represented at the meeting were: Australia, Canada, Japan, Namibia, Nigeria, Norway, Peru, South Africa, Tanzania, The Gambia, Uganda, United States, Zambia, and Zimbabwe. The presentations focused on country specific situations, and special topics.

Country Specific Presentations

How access to housing finance varied across countries was one of the highlight of the country specific presentations. Several papers and the 2014 IIMB-IMF housing conference have pointed out that access to housing finance is a bit easier in the developed countries compared to developing countries. This finding is consistent with what is reported on the ground. The presentations from developed countries showed single digit mortgage rates (Australia: 4.5%, Canada: 2.5-2.9%, Japan: 0.625-0.750%, Norway: 2.2-3.4%, United States: 3.6%). In contrast the presentations from emerging and developing countries showed double digit mortgage rates except for Peru (Namibia: 11.75%, Peru: 8.7%, South Africa: 10.5%, Tanzania: 19%, The Gambia: 20-23%, Uganda: 22%, Zambia: 22.5%, and Zimbabwe: 12-18%).

A growing housing deficit in emerging and developing countries was also highlighted at the meeting. Most of the representatives from emerging and developing countries reported a housing backlog that is growing. For example, Namibia has a backlog of 110,000 housing units that is growing at annual rate of 3,700 units. Other countries also reported housing deficits: Peru: 1.9 million units, The Gambia: 50,000 units, Uganda: 1.6 million units, Zambia: 1.5 million units, Zimbabwe: 1 million units. In Tanzania, demand for housing is projected at about 200,000 units annually.

Special Topics:

Human settlements, affordable housing, green building, IHA Africa, and a dataset on cross-country housing supply were some of the special topics that were presented. First, there was a presentation that described the fundamental elements of human settlements policy and legislation in South Africa. Second, there was a very fascinating presentation and site visit to the Cornubia Project. This affordable housing project aims at being a multi-billion Rand mixed use, mixed income development incorporating industrial, commercial, residential, and open space use. The overall project area is approximately 1,200ha in extent comprising of mainly agricultural land. Third, Green Building Council of South Africa made a presentation on green building. Green building has started to gain traction and emerging as an important topic.

Fourth, there was a presentation that calls for creating an International Housing Association for Africa or developing countries. One of the ideas is to bring more members from the Africa and developing countries and shed more light on the housing market in this part of the world. Five, there was a presentation on a dataset on housing supply. The presentation focused on showing the trends and patterns in housing construction since the Great Recession across 42 countries.     

“House prices have increased broadly in line with income growth on average over the last five years, and there is no evidence of an overvaluation”, says IMF’s new report on Mexico.

The IMF’s Global House Price Index—an average of real house prices across countries—is now almost back to its level before the financial crisis. The underlying picture is quite varied. Developments in the countries that make up the index fall into three clusters:

• The first cluster—gloom—consists of 18 economies in which house prices fell substantially at the onset of the Great Recession, and have remained on a downward path.
• The second cluster—bust and boom—consists of 18 economies in which housing markets have rebounded since 2013 after falling sharply during 2007-12.
• The third cluster—boom—comprises 21 economies in which the drop in house prices in 2007–12 was quite modest and was followed by a quick rebound

Read the full report for details and IMF assessments of house price valuations in various countries.

The IMF’s latest Financial System Stability Assessment on Sweden notes the following:

“Housing finance creates vulnerabilities for financial stability due to specific features of Swedish residential mortgages, high household debt, and rising asset prices (…). House prices have risen to high levels, slowing only recently. The price-to-income ratio is 40 percent above its 20-year average, among the highest in advanced economies, raising a red flag. Research suggests that house prices are 12 percent above long-run equilibrium (IMF Working Paper 15/276). House price gains provide incentives for households not to amortize loans and take out even larger loans relative to income, aided by longer loan maturities. Mortgage interest rate deductibility and the lack of a property tax further propel house demand. (…) The pace of housing completions represents less than 1 percent of the housing stock, lagging behind rising population, especially in urban areas. (…) FI’s view is that the rising house prices and high household debt do not entail high credit risk for banks, but they do add to macroeconomic vulnerabilities. (…) High asset valuations do not necessarily lead to asset price declines, but if a fall were to happen, the corrections could be much larger and damaging, especially given the high household debt. (…) Even though households appear resilient, it is challenging to be conclusive about how scenarios of falling asset prices and higher interest rates would play out. (…) The authorities have responded to increasing household debt with macroprudential measures focusing on credit supply (…). The recent amortization requirement and the government’s 22–point proposal for more housing are welcome, but more is needed to address distortions in the housing market.”