The Unassuming Economist

From the IMF’s latest report on Singapore:

“Driven by strong demand, the private residential housing market runs the risk of diverging further from fundamentals, while commercial real estate is recovering following a few slow years due to the pandemic. House price inflation exceeding pre-COVID trends reflects strong dwelling demand driven by a shift to working from home, changes in domestic household formation with more single home households, increase in foreign demand, low real lending rates and constrained supply exacerbated by the pandemic. Some moderation in price growth occurred during the first quarter of 2022 (…). At close to 90 percent, Singapore already has one of the highest home ownership rates, implying that housing demand is principally being driven by non-residents and resident search for yield activity. Staff analysis suggests that private residential house prices are currently above long-term fundamentals. 13,14 Following a sharp decline in prices in 2020, commercial real estate showed signs of recovery in 2021, with prime office rents rising. However, prices in this segment remain below their pre-pandemic levels.

The authorities recently tightened macroprudential measures to cool buoyancy in private and public residential real estate markets, complemented by supply-side measures. Systemic risk is elevated but centered mostly in private residential real estate markets, with key macro-financial transmission channels operating through: (i) an elevated level of household debt, which peaked at 71 percent of GDP during the pandemic, about three quarters of which is secured against real estate; (ii) a high share of mortgages with fixed rates for 3 years or less before transitioning to floating rates; (iii) strong foreign demand sustaining private residential valuations; and (iv) property market related loans representing a third of banks’ total loans by end-2021. Stable average LTV and DS ratios, normally based on conservative interest rate assumptions, are mitigating factors. Recent measures to moderate residential property prices included (i) raising the Additional Buyer’s Stamp Duty (ABSD) rates (text table), (ii) tightening the total debt servicing ratio (TDSR) from 60 to 55 percent, and (iii) tightening the loan to value (LTV) limit for loans from HDB from 90 to 85 percent to encourage greater financial prudence. Based on MAS’ estimates, the resident credit-to-GDP gap was 10.6 percent in Q1 2021 but has since moderated to 0 percent. The authorities have also issued advisories urging prudence in new loan origination, particularly for property purchases. These and other measures complement plans to raise the supply of public and private housing with the Housing and Development Board targeting to raise public flat supply by 35 percent in 2022 and 2023.”

On cross-country:

• World’s Frothiest Housing Market Cools in Global Warning Signal. New Zealand’s home sales and prices are tumbling, providing a glimpse of what may unfold elsewhere. – Bloomberg
• Higher interest rates to test buoyant housing markets. Markets where property prices surged during the pandemic are now among the most exposed to a crash – FT
• Housing Boom Fades World-Wide as Interest Rates Climb. Prices are falling in some places, raising the risk of market routs and adding to central banks’ challenges – Wall Street Journal
• Economy Week Ahead: Housing Market and Central Bank Policy in Focus. Expected economic news includes decisions by the European Central Bank and the Bank of Japan – Wall Street Journal
• How to overcome challenges the housing world is facing now – Washington Post

On the US:    

• Housing Starts in US Decline to Lowest Level Since September. Groundbreaking dropped 2% to 1.56 million pace in June. Single-family construction, permits fell to two-year lows – Bloomberg
• U.S. Home Sales Fell Again in June, Economists Estimate. The housing market and construction have cooled as higher interest rates start to bite – Wall Street Journal
• Home Building Slipped in June for Second Straight Month. Housing starts fall 2% as buyer demand softens under weight of higher interest rates – Wall Street Journal
• The Housing Market Is Correcting—So Why Are Home Prices Still Soaring? – Realtor
• Housing’s Contribution to Economic Development – Reframing the Narrative – USC Lusk Center for Real Estate With – The Way Forward Housing Coalition
• Housing Demand and Remote Work – San Francisco Fed
• Foreign Buyers Return to US Housing Market After Three-Year Drought. After three straight years of declining sales, buyers from other countries purchased $59 billion worth of US homes – Bloomberg
• Single-Family Starts Fall to Two-Year Low on Higher Construction Costs and Interest Rates – NAHB 
• Slowdown in Single-Family Permits in May 2022 – NAHB
• Dynastic Home Equity – San Francisco Fed
• Federal Housing Policies Make It Easier to Get a Loan but Not Be a Homeowner – Cato Institute
• Remodeling Gains to Slide Lower Through Mid-Year 2023 – Harvard Joint Center for Housing Studies
• Dreams adrift: pandemic relocations deepen Hawaii’s housing crisis. As key workers abandon hopes of home ownership and desert the archipelago, its economy and laid-back lifestyle are under threat – FT
• The Housing Shortage Isn’t Just a Coastal Crisis Anymore. An increasingly national problem has consequences for the quality of American family life, the economy and the future of housing politics. – New York Times
• Home Prices Grew at Near-Record High in Second Quarter. FNM-HPI Measured Home Price Growth at Annualized Rate of 19.4 Percent in Q2 2022 – Fannie Mae 

On China

• Chinese city Zhengzhou sets up bailout fund as mortgage boycott spreads. The homebuyer revolt over stalled projects is aggravating a property sector crisis – FT
• People Are Refusing to Pay Their Mortgages in China. The Protest Could Spill Into the Wider Economy – Time 
• China’s Mortgage Boycott Capital Plans Property Bailout Fund. Henan’s capital Zhengzhou faces the most mortgage protests. The bailout fund will help stressed projects in Zhengzhou – Bloomberg
• China’s mortgage boycott spurs shakeout among strapped developers – Reuters 
• China property: refusing to pay mortgages is a powerful political weapon. Unrest could mark a bad start to president Xi Jinping’s third term – FT
• China banks told to bail out property developers as mortgage boycotts threaten economy. Intervention comes as thousands of homebuyers refuse to make mortgage repayments in deepening property sector crisis – The Guardian
• China Seeks to Quell Mortgage Revolt Among Frustrated Home Buyers. Analysts estimate home buyers could walk away from as much as $150 billion to $370 billion in home loans – Wall Street Journal
• China Weighs Mortgage Grace Period to Appease Angry Homebuyers. Officials consider temporary waivers after payment boycott. Property crisis has fueled concerns about social stability – Bloomberg
• China urges banks to extend loans for real estate projects amid mortgage boycott – Reuters
• Chinese regulators rush to tame investor panic over mortgage boycotts. Homebuyers stop paying loans on more than 200 unfinished property projects – FT
• More Chinese Homebuyers Refuse to Pay Mortgage Loans Amid Contagion Fears. Bank stocks fell on concern property crisis is spreading. Projects facing mortgage snubs more than tripled since Monday – Bloomberg
• China Convenes Banks on Mortgage Boycott Roiling Markets. Officials asked for information on impact of housing loan snub. More buyers refuse to pay loans on unfinished home projects – Bloomberg 
• Homebuyers in Multiple Cities Go on Mortgage Strike Over Delayed Projects – Caixin Global
• Is China stumbling into its own mortgage crisis? – Washington Post 
• China Home Prices Fall for 10th Month as Crisis Deepens. Market facing new stress with homebuyer mortgage boycott. Government relief efforts have yet to revive property sector – Bloomberg

On other countries:  

• [Canada] Canada Home Prices Slide Most Since at Least 2005 on Rates. Price decline accelerates to 1.9% in June; Toronto suburbs hit. Bank of Canada has increased borrowing costs aggressively – Bloomberg
• [Canada] Canadian home prices continue to plunge in June as higher rates pinch – Reuters
• [Canada] Homeowner Politics and Housing Supply – University of British Columbia
• [Canada] The housing market trend no one’s talking about is improving affordability for young buyers – The Globe and Mail
• [Canada] Toronto Offers Glimpse of Housing Pain as Renovations Slow Down. As rates rise, homeowners are cutting back on improvements. Housing market, with renos, made up 8.5% of GDP in pandemic – Bloomberg
• [Egypt] Egypt’s erratic house price movements – Global Property Guide
• [Mexico] Mexico’s housing market cooling – Global Property Guide
• [Romania] Sharp turnaround for Romania’s housing market – Global Property Guide
• [Singapore] Singapore Home Sales Fall to Lowest Since May 2020 on Costs. Purchases fell to 488 new units in June, versus 1,355 in May. Central banks are hiking up interest rate to curb inflation – Bloomberg
• [Singapore] Singapore Central Bank Sees Stable Residential Property Market – Bloomberg
• [United Kingdom] The Bank of England’s bizarre mortgage decision. With interest rates rising, now is not the time to scrap the test of affordability for home loans – FT
• [United Kingdom] UK house prices rising, despite slowing demand – Global Property Guide
• [Vietnam] Vietnam’s housing market gaining momentum – Global Property Guide

From the IMF’s latest report on Germany:

“The authorities have appropriately tightened macroprudential policy in the face of house price risks, but further actions are needed. Rapid rises in housing prices (12.4 percent between 2021Q4 and 2020Q4) have led to residential real estate valuations above fundamental levels for Germany overall, and even greater misalignment in larger cities. Nationwide, price-to-rent and price-to-income indicators suggested deviations from the long-run average of about 37 and 21 percent, respectively at end-2021, while estimates of an econometric model suggest overvaluations of 10–15 percent at 2021Q3. Meanwhile, a city-level panel model suggests greater overvaluation in the largest cities. Mortgage origination has also been strong and lending standards appear somewhat loose in certain segments. For example, according to different private sector data sources, between 7 and 20 percent of mortgage loans exceed the underlying property value (e.g., Text Figure 11). With these vulnerabilities in mind, the authorities appropriately raised the counter-cyclical capital buffer to 0.75 percent, from zero previously, and introduced a sectoral systemic risk buffer of two percent on loans secured by domestic residential real estate to apply from February 1, 2023. The authorities have also cautioned banks against taking excessive risks in mortgage lending. However, legal concerns and a lack of comprehensive data on lending standards remain obstacles to the activation of borrower-based measures, like the imposition of limits on loan-to-value ratios on new lending. As noted in the FSAP, precautionary use of borrower-based measures is warranted, and the authorities should remove obstacles to their activation by modifying the law on borrower-based measures, while in the interim strengthening guidance on lending standards (for example, encouraging banks to adhere to loan-to-value ratio limits through issuing a Guidance Note to banks). The authorities are also urged to accelerate the closure of data gaps and add income-based measures into the macroprudential toolkit.

Authorities’ Views

While generally sharing staff’s assessment of financial sector health and recommendations, the authorities assessed that risks in the housing market do not warrant the activation of borrower-based measures at this juncture. The authorities appreciated the FSAP’s stress tests of bank solvency and liquidity and found the results to be in line with their expectations. They are aware of U.S. dollar liquidity risks at some LSIs but judge that these are already sufficiently managed in the supervisory process. They emphasized the risk-sharing that takes place between savings and cooperative banks and their regional wholesale bank partners. The authorities highlighted the appropriateness of the macroprudential policy package announced by BaFin in January 2022. They noted that important data gaps on lending standards will be closed in 2023 and legislative proposals are being drafted to add income-based instruments to the toolkit. Furthermore, the Bundesbank has set up a project dedicated to monitoring the effects of the macroprudential policy package—inter alia its effects on lending standards. Existing private sector data on LTV and DSTI ratios currently provide mixed signals. On financial safety nets, the authorities considered that maintaining the existing multiple deposit guarantee schemes appropriately reflects the three-pillar structure of the German banking system.

On cross-country:

• Are foreigners inflating property prices? – BFM

On the US:    

• New Fed Paper Finds Surging Home Prices Driven by Demand — Not Supply – Bloomberg
• Volatility in Home Sales and Prices: Supply or Demand? – Federal Reserve Board
• What’s behind the rising rents and what can be done? – Washington Post
• Relief Eludes Many Renters as Fed Raises Interest Rates. As the central bank sharply increases borrowing costs, it could lock would-be home buyers into rentals and keep a hot market under pressure. – New York Times
• Remodeling Market Declines Year-over-Year – NAHB
• The Great Appreciation Of Home Prices Is Now Over – Forbes
• Housing Shortage Spreads Across US, Becoming Coast-to-Coast Crisis. New analysis shows deficits surging just before the pandemic, even in areas that had few supply challenges a decade ago. – Bloomberg
• What’s Up With the Crazy Housing Market? Rising mortgage rates. Faltering home sales. Skyrocketing rents. Here’s how to make sense of a baffling real estate market. – New York Times
• Housing inventories may note save prices after all – Washington Post
• The United States Must Deliver on Equitable Housing Outcomes for All. Federal investments kept millions of Americans in their homes during the pandemic; in the long term, commitment to bold federal housing policy can eliminate housing insecurity for millions while uplifting historically disadvantaged communities. – American Center for Progress
• Who’s To Blame for Gentrification? Most likely, no one in particular—but policy changes can alleviate the housing shortage and prevent displacement. – Planetizen
• Why this tightening cycle is so brutal for the US housing market – Quartz
• Housing-Affordability Index Drops to Lowest Level Since 2006. Mortgage rates and home prices are up sharply, pressuring buyers and driving sellers to cut prices – Wall Street Journal 
• The Coming Housing Risks – American Action Forum
• The cities where house prices are most likely to fall – Axios
• The great house U.S. price boom continues – Global Property Guide
• Inflation Expectations Increase at Short Term, But Decline at Medium and Longer Terms; Home Price Growth Expectations Decline Sharply – New York Fed
• How to limit the risks to financial stability posed by the Federal Home Loan Bank System – Brookings
• Housing Could Provide More Fuel for Inflation. Other consumer prices might need to post big drops for the Fed to see overall inflation fall – Wall Street Journal

On China

• Is China Stumbling Into Its Own Mortgage Crisis? A rapidly spreading protest — borrowers refusing to make payments on unfinished homes — threatens to rattle the financial system. – Bloomberg
• China Convenes Banks on Mortgage Boycott Roiling Markets. Officials asked for information on impact of housing loan snub. More buyers refuse to pay loans on unfinished home projects – Bloomberg  
• Chinese Homebuyers Across 22 Cities Refuse to Pay Mortgages. Home loan payment halts may cause $83 billion of bad debt. China Construction Bank, Postal Bank, ICBC may be more exposed – Bloomberg
• China developers face $13bn wall of dollar bond payments in second half. Foreign investors fear Beijing will favour onshore creditors as Shimao Group becomes latest to default – FT

On other countries:  

• [Cambodia] Cambodia’s house prices plunging – Global Property Guide
• [Ireland] Taxes Can Ease House Price Volatility, Irish Central Bank Says – Bloomberg
• [Sweden] Swedish Home Price Expectations Drop to Lowest Level Since 2008. SEB survey points to worsening price outlook for houses. The Riksbank sees home prices falling 16% through end of 2023 – Bloomberg
• [Thailand] Thailand’s housing market continues to slow – Global Property Guide
• [United Kingdom] UK house prices rise at fastest rate in 18 years. Typical home goes for record £294,845 as property shortage drives up costs for buyers – FT
• [United Kingdom] Covid-19 and the curious case of the rental bust-up that never came. An arbitration scheme to handle pandemic rental arrears is currently virtually unused – FT

From the IMF’s latest report on the US;

“The housing market has been on a steep upward trajectory. Nationwide, average prices are 38 percent above where they were at end-2019 and prices are relatively high as a share of both rents and household income. Leverage, though, has been contained by relatively low loan-to-value ratios and conservative underwriting standards (a legacy of the post-financial crisis reforms). In addition, refinancing activity over the past few years has reduced average mortgage payments to all-time lows as a share of disposable income. As such, financial stability risks emanating from the housing market appear to be contained. However, there are important social concerns linked to the worsening in housing affordability, particularly for lower income households.”