The Unassuming Economist

“House prices rose significantly in recent years, fuelled by a robust expansion of income and credit growth and government subsidies. If prices were to fall, banks’ non-performing loans could increase. However, the risk is mitigated by low households’ loan-to-value ratios (about 55 percent), fixed borrowing rates, and a low exposure of banks to mortgage loans. High growth in credit to the private sector, including consumer loans, has been a concern in recent years (IMF Country Report 13/35), but has been abating,” says IMF’s annual economic report on Colombia. 

“Property prices have increased some 300 percent from their trough in 2003. While prices have leveled off more recently, estimates from [IMF] staff models suggest they could be higher than suggested by fundamentals. (…) a disorderly correction, resulting from, for example, global market volatility or domestic shock, remains a key risk as an abrupt downturn in prices could trigger an adverse feedback loop between economic activity, bank lending, household balance sheets, and the property market.” says the new IMF’s economic report on Hong Kong.

“Without policy action, underlying forces for housing price appreciation will likely persist (…) Prices do not appear overvalued at this time, though they have recently picked up (…) Banks’ increased exposure to mortgages bears vigilance, and buffers should be maintained. The tightening in the risk weights for LTVs above a certain level for banks, and the capital surcharge for domestically-oriented banks, are appropriate. If these measures are found to be insufficient after some period of observation, further steps may be needed (…) Government policies should become more neutral in relation to home ownership vs. renting. Current policies provide incentives for ownership, spurring demand pressures further”–these are the main points from the overall assessment of a new IMF study on Luxembourg’s housing market. 

Read the full study here, which addresses the following topics: should the housing market be a source of concern; factors driving the imbalance between housing demand and supply; households’ financial situation; and bank exposures to real estate.

“The housing market is recovering from a very sharp decline during the crisis, but prices and household leverage are well below their peak levels,” says the new IMF economic report on Estonia. The report also says that “the housing market peaked in 2007 before house prices lost roughly half of their value by 2009. Prices have risen since then, but they are roughly midway between the peak and the trough. Loan-to-value ratios on new loans have fallen from roughly 100 percent of the purchase price before the crisis to roughly 60 percent since 2010.”

In Asia, macroprudential policies related to the housing sector has been the most effective. They have reduced house price inflation by two percentage points after one quarter. Moreover, “housing-related macroprudential instruments have had an impact—particularly caps on loan-to-value ratios and the taxation of housing transactions. In particular, such instruments have helped lower credit growth, slow house price inflation, and dampen bank leverage in Asia (although the latter effect is quite small),” says a new IMF study on Macroprudential Policy and Capital Flow Measures in Asia: Use and Effectiveness.