The Unassuming Economist

From the IMF’s latest report on Canada:

“The sharp increase in Canadian house prices, particularly during the pandemic, naturally raises the question of whether an asset price bubble was forming, or whether fundamentals explained most or all of the price run-up. Extending the analysis in Andrle and Plašil (2019), standard mortgage affordability formulas were used to link interest rates, income growth, and other household fundamentals to so-called “attainable” house prices in eleven Census Metropolitan Areas (CMAs) across Canada.

Staff analysis shows that in most locations—with the notable exceptions of Toronto and Hamilton—the change in house prices through the first half of 2021 was fully explained by households’ expanded borrowing capacity (which was driven by historically low mortgage rates and growing income). From mid-2021 onward, however, the growth in house prices in most CMAs exceeded the growth in attainable prices, suggesting some frothiness.

Even the apparent frothiness of the past eighteen months, however, is explainable if one considers
the perspective of investors. For investors, low interest rates, the expectation of economic recovery, and
broadly unchanged long-term growth expectations made prospective real estate cash flows more valuable than for the average owner-occupier. The “r-g” differential returned to its 2019 lows, and in most CMAs, the investor-implied valuation of the median house exceeded observed prices. In other words, buying real estate even at prices the median owner-occupier could not afford would still be consistent with achieving the required return on investment.

Looking forward, the projected rise in interest rates from their lows could drag attainable prices
down over 20 percent from their peak. And should regional overvaluations shrink at the same time, the
drop in actual prices could be substantially higher than this.”

On cross-country:

• Global Home Prices to See Declines or Lower Growth in 2023 – Fitch Ratings
• Global Housing and Mortgage Outlook – 2023 – Fitch Ratings
• Don’t Look Up: House Prices in Emerging Europe – IMF
• From New York to Hong Kong, how renting became unaffordable everywhere. In today’s newsletter: It’s not just the UK struggling with soaring rent and living standards – these four cities tell the story of a worldwide market in crisis – The Guardian
• Savills Global Residential Agent Sentiment Survey – Savills
• Waking a Sleeping Giant: Reflections from ADB’s 1st Asia-Pacific Housing Conference – Way Forward Housing Colatition
• How to solve the housing crisis – FT

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

• Renters Are Finally Catching a Break. After 18 months of blistering growth, cooling demand in the housing market is forcing landlords to tone down their pricing. – Bloomberg
• U.S. house prices to fall 12% peak to trough: analysts – Reuters poll – Reuters
• Black Knight Mortgage Monitor: Home Prices Declined in October; Down 3.2% since June – Calculated Risk
• Housing Costs, Inflation’s Biggest Component, Are Poised to Ease. New rents are already softening, but that might not show up in official inflation data for months because of measurement delays – Wall Street Journal

On the US—other developments:    

• What’s Going On With the Housing Market? Home buyers and sellers are trying to make sense of a downturn that’s full of contradictions: Demand has seized up but supply is still low; prices are sliding but not plummeting; and no one can agree on what comes next – Wall Street Journal
• The Economic and Housing Markets Outlook – American Action Forum
• U.S. construction spending falls in October on single family housing – Reuters
• Once-Affordable US Housing Markets Are Now Out of Reach for Most – Bloomberg
• A Big Chill Is Here for the Housing Market. Next Year Could Bring More Trouble. Affordability is still an issue, mortgage rates will remain high, and homes are sitting on the market longer. It all adds up to a stalled 2023 for real estate. – Barron’s
• Single-Family Construction Slows in Post-Covid Hot Markets – NAHB
• Q3 Update: Delinquencies, Foreclosures and REO – Calculated Risk
• Irish House Prices Set for New Records on High Rents, Tight Supply. Rents in Ireland rose almost five times EU average in 12 years. New homes have failed to keep pace with population growth – Bloomberg
• 1st Look at Local Housing Markets in November. Early reports suggest another step down in sales – Calculated Risk
• Top Housing Markets for 2023. Amid Higher Costs in 2023, Housing Markets in Affordable, Mid-Sized Manufacturing Hubs will Stay Busy – Realtor

On other countries:  

• [India] India’s housing market to remain resilient, defying global downtrend: Reuters poll – Reuters
• [Germany] Germany’s housing market is facing a serious downturn in prices, analysts say – CNBC
• [Greece] Cheap loans set to give young Greeks a shot at a home of their own. Government programme will offer mortgages for as little as 1% to address an affordability crisis – FT
• [Sweden] Swedish House Prices Drop Again as Market Woes Deepen. Home prices have lost up to 13% from 2022 peak, realtor says. Nordic country’s housing market suffers as interest rates rise – Bloomberg
• [United Kingdom] The Guardian view on housing politics: a clash of false alternatives. Communities deserve better than a choice between developers’ financial interests and local nimbyism – The Guardian
• [United Kingdom]  How Far Will UK House Prices Fall? The UK isn’t the most vulnerable global housing market, but a significant fall is still on the cards. – Bloomberg
• [United Kingdom]  UK house prices fall at fastest rate in 14 years, says Halifax. Rising borrowing costs squeeze prospective homebuyers, sparking a 2.3% decline for November – FT
• [United Kingdom] The Optimistic View on UK House Prices. If mortgage rates stay put and the labour market remains strong, a UK house price crash isn’t a certainty – Bloomberg  
• [United Kingdom] UK construction growth slows as mortgage rates hit housing market. Concerns over economic outlook and cancelled sales curtail building projects, survey finds – FT
• [United Kingdom] Britain’s ‘Jobs-Rich’ Recession May Limit Drop in Housing Market. RICS says prices and new buyer inquiries fell in November. Tight labor market means many people may remain in work – Bloomberg
• [United Kingdom] We can’t build our way out of the growing housing crisis – The Guardian

On cross-country:

• Where the coming housing crunch will be most painful. Global property’s goody-two-shoes are in trouble – The Economist
• ‘Mortgage Dominance’ – Bloomberg

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

• U.S. housing starts tumble in October amid soaring mortgage rates – Reuters
• US Housing Starts Drop With Pullback in Single-Family Projects. New homebuilding declined 4.2% last month to 1.43 million pace. Single-family starts, permits fell to lowest since May 2020 – Bloomberg
• U.S. housing faces longer descent to basement – Reuters

On the US—other developments:    

• Have We Been Measuring Housing Inflation All Wrong? – Washington Post
• New Construction and Housing Affordability – Cato Institute
• U.S. existing home sales plunge; tight inventory keeps prices rising – Reuters
• The Remote Work Revolution: Impact on Real Estate Values and the Urban Environment – NBER
• Passing Along Housing Wealth from Parents to Children – San Francisco Fed
• Housing Industry Braces for a Downturn, but Investors Are Piling In. Beaten-down shares get a boost from reports of softening inflation – Wall Street Journal  
• House Price Growth and Inflation During COVID-19 – Fed
• Are new housing policy reforms working? We need better research to find out. – Brookings
• ‘Dynastic’ Home Equity Affects U.S. Homeownership Levels – Wall Street Journal
• The U.S. Needs More Housing Than Almost Anyone Can Imagine. For Americans to live a productive, prosperous, happy life, homes need to be truly abundant. – The Atlantic 
• Housing Breaks People’s Brains. Supply skepticism and shortage denialism are pushing against the actual solution to the housing crisis: building enough homes. – The Atlantic
• The Case for Building More Housing – The Atlantic
• Housing Supply and Property Taxes – Cato 
• Investor Home Purchases Drop 30% as Rising Rates, High Prices Cool Housing Market. Buying activity by companies fell in line with the decline in overall home sales amid higher borrowing costs – Wall Street Journal
• Housing Shortage Reflects the Cheap Cost of Holding Vacant Land. High taxes on buildings and low taxes on land discourage landowners from development – Wall Street Journal
• Turkish Developer in Tie-Up to Invest $2.2 Billion in US Housing. Nef, Workforce Housing to build 10,000 units over five years. Joint venture to invest in Miami, Austin, New York and LA – Bloomberg
• How Fed Policies Burn Housing. Today on TAP: Higher interest rates raise housing costs to consumers in multiple ways—the opposite of the Fed’s anti-inflation goals. – The American Prospect

On China:

• China’s property prices to rise in 2023, sales to fall more slowly: Reuters poll – Reuters
• Reluctant buyers pose main threat to Beijing’s property revival efforts – Reuters
• Economist Who Called China’s Housing Slump Sees Slow Recovery. Nomura’s Lu Ting says China’s ‘Volcker moment’ is finally over. Recovery in housing market is still some distance away – Bloomberg

On other countries:  

• [Canada] How Bad Will Housing Get? The Chill Gripping a Once-Hot Market Offers a Test. As Canadians struggle with soaring interest rates, the next few months hold clues on whether there will be a surge in forced sellers. – Bloomberg
• [Canada] Canada house prices to tumble 17.5% peak to trough, say analysts – Reuters
• [Germany] German residential property market faces risk of price drop – DIW study – Reuters
• [Hong Kong] Citibank expects Hong Kong property prices to fall another 10 per cent, bottom out in second quarter of 2023 – South China Morning Post
• [Hungary] EU’s Hottest Property Market Cools as 18% Key Rate Hits Lending. Real estate transactions, mortgage lending plunge in Hungary. Hungarian housing prices grew at fastest pace in EU since 2015 – Bloomberg
• [Ireland] Ireland’s millionaire homeowners belie a stark inequality gulf. Housing supply shortages, the cost of living crisis and the prospect of tech lay-offs are squeezing the next generation – FT
• [Mexico] An Approach for Housing Wealth Estimation: The Mexican Case – Central Bank of Mexico
• [New Zealand] New Zealand, particularly vulnerable to a housing crash, tightens its belt as rates soar. New Zealand’s reserve bank delivered its largest rate hike in history on Wednesday, piling pressure on the country’s homeowners – The Guardian
• [New Zealand] New Zealand house prices forecast to drop 18% from peak – Reuters
• [Spain] Spain approves mortgage support for more than 1 mln households – Reuters
• [Spain] Spain approves mortgage relief plan. Cabinet authorises moves that include lowering borrowing costs over five years to help offset higher interest rates – FT
• [Sweden] Soaring Power Costs Are Sending Swedish House Prices Lower – Bloomberg
• [Sweden] Swedish Housing Is Now in the Worst Rout Since the 1990s. Home prices fell by 3% in October, data from Valueguard shows. Declines are largest for detached houses as power costs surge – Bloomberg
• [Sweden] Swedish Housing Is Now in the Worst Rout Since the 1990s. Home prices fell by 3% in October, data from Valueguard shows. Declines are largest for detached houses as power costs surge – Bloomberg
• [Sweden] Sweden prepares for 75bp rate hike despite house price correction – ING
• [United Kingdom] A New Source of Economic Anxiety in Britain: Soaring Mortgage Rates. After more than a decade of ultralow interest rates, millions of British households suddenly face large jumps in their monthly payments, rocking the nation’s already weak economy. – New York Times
• [United Kingdom] Jeremy Hunt’s stamp duty tweak threatens weak housing market, warn experts. UK chancellor to phase out cuts announced by Kwasi Kwarteng – FT
• [United Kingdom] Nationwide warns bad loans likely to rise as household finances are squeezed. UK’s largest building society loaned its pension fund £400mn after mini-Budget turmoil – FT
• [United Kingdom] Mortgage rates on five-year fixes tip below 6 per cent. Signs of stability return to the UK home loan market following September’s ‘mini’ Budget – FT
• [Vietnam] Vietnam Seeks Bond Market Growth After Real-Estate Credit Crunch. Property sector crisis not widespread, finance minister says. Government aims to expand bond market to 25% of GDP by 2030 – Bloomberg

On cross-country:

• The global housing market is heading for a brutal downturn. A pandemic-induced property boom peaked at the end of 2021 but the sector is now braced for the broadest slowdown since the financial crash  – Financial Times
• Europe’s banks face ‘direct hit’ to profits from house price slide – Reuters
• Chartbook #171 Finance and the polycrisis (2) The global housing downturn – Adam Tooze

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

• Home-Price Growth Slows Under Tide of Rising Mortgage Rates. Prices in most areas remain higher than they were a year ago because supply remains limited – Wall Street Journal
• ‘It’s Never Our Time’: First-Time Home Buyers Face a Brutal Market. Unable to compete against older buyers with cash offers, younger potential buyers feel like they are never going to own a house. – New York Times
• Mortgage Rates Need Another Push to Keep Plunging. A measure of rates on home loans plunged along with Treasury yields following the hopeful inflation data, but they could remain relatively elevated for a while – Wall Street Journal
• Soaring US Mortgage Rates Are Discouraging Americans From Moving – Bloomberg
• Lawler: Are US Rents Falling? – Calculated Risk
• Home prices will fall in 2023, but affordability will be at its worst since 1985, research firm says. Capital Economics predicts that buyers will gain more power in the housing market next year – Market Watch
• Mortgage Rates Are High Because Nobody Is Buying Mortgages. Banks went on a mortgage-bond buying spree last year, but now they are stepping back from the market – Wall Street Journal
• October Housing Starts: Record Number of Housing Units Under Construction. Housing Starts Decreased to 1.425 million Annual Rate in October – Calculated Risk

On the US—other developments:    

• Skimming U.S. Housing Froth a Delicate, Daunting Task – Dallas Fed
• Mortgage Rates Could Tank Home Prices by 20%, Fed Study Finds. Dallas Fed study maps out potential impact of jump in rates. US house prices tumbled over 32% from 2006 high to 2009 low – Bloomberg 
• Current State of the Housing Market; Overview for mid-November. A Sharp Decline in Sales, House Prices Falling – Calculated Risk
• Home Buyers Get Creative With Cash Deals to Fend Off High Mortgage Rates. Cash-only deals are on the rise as buyers look for ways to circumvent 20-year-high interest rates – Wall Street Journal
• 2nd Look at Local Housing Markets in October. Another step down in sales – Calculated Risk
• Single-Family Permits Decline in September 2022 – NAHB
• Builder Confidence Declines for 11 Consecutive Months as Housing Weakness Continues – NAHB
• It’s a historically bad time to buy a home, and a leading economist says it might not get any better until 2024 at the earliest – Business Insider

On China:

• China Dials Back Property Restrictions in Bid to Reverse Economic Slide. Partial easing of housing-sector rules comes as Beijing also seeks to lessen economic toll of strict Covid controls – Wall Street Journal
• China’s 16-Point Plan to Rescue Its Ailing Property Sector – Bloomberg
• China regulators order more financing support for property firms – Reuters  
• China’s property easing is minor capitulation – Reuters
• In China’s property crisis, global asset managers see opportunity in rental housing – Reuters

On other countries:  

• [Canada] Canadian Home Prices Fall Again, Now Down 10% From Peak. Buyers, sellers adjusting to central bank’s aggressive hikes. Number of sales ticks up for first time since February – Bloomberg
• [Canada] High interest rates bring winter gloom to Canada’s housing market – Reuters
• [Canada] Canadian housing starts fall 11% in October -CMHC – Reuters
• [Israel] Housing prices jump almost 20% in 2022, costs of consumer goods up 4.9%. Consumer Price Index shows 0.6% increase last month, inflation climbs to 5.1% in October 2022 compared to October 2021 – The Times of Israel
• [Japan] Property Markets Work Better When the Line Doesn’t Always Go Up. Japan’s housing sector has been flat for years. But if dwellings are plentiful and attainable, why should that be a bad thing? – Bloomberg
• [Korea] Record Apartment Price Drop Adds Korea Property Sector Worries. Weekly flat prices fall at fastest pace in at least a decade. Rate hikes boost burden on households getting home loans – Bloomberg
• [Poland] The mortgage time bomb ticking beneath Poland’s banks. The legal fallout from a scheme to sell housing loans in Swiss francs threatens to push banks under — and rattle a fragile economy – FT
• [New Zealand] New Zealand house prices see biggest fall since the 1990s – Reuters
• [United Kingdom] The era of ‘mortgage dominance’. Forget about fiscal dominance, nothing spooks CBs like angry homeowners – 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] Property downturn hits UK housebuilders as sales plummet. Developers warn demand has dropped as much as 50% as higher mortgage rates bite – FT
• [United Kingdom] UK house prices fall as buyers count cost of mini-budget, property website Rightmove says – Reuters
• [United Kingdom] Housing storm leaves UK exposed, skews policy – Reuters
• [United Kingdom] UK House Prices Risk Drop of Up to 20%, Bloomberg Economics Says. Latest numbers suggest ‘some form of correction is likely’. Higher interest rates are pushing down housing values – Bloomberg 

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.”

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