The Unassuming Economist

From the IMF’s latest report on Estonia:

“Real estate market activity has moderated, and prices remained anchored to incomes. Transactions in the housing market slowed by 1.6 percent (y/y) in 2018, compared to an increase of 8.2 percent the previous year. House prices increased by 5.7 percent in 2018, driven by the rising share of new houses (…). Furthermore, the ratio of total liabilities to gross wages and salaries declined further from 114 percent in 2017 to 109 percent last year, suggesting a continued reduction in household leverage. Overall price trends remain strong, but aligned to income growth. During 2019H1, there were similar transactions overall compared to 2018H1, but fewer transactions for new apartments. The average price increased by 5.9 percent as new dwellings are being added at a slower pace.”

From an IMF working paper by Andrea Deghi, Mitsuru Katagiri, Sohaib Shahid, and Nico Valckx:

“This paper predicts downside risks to future real house price growth (house-prices-at-risk or HaR) in 32 advanced and emerging market economies. Through a macro-model and predictive quantile regressions, we show that current house price overvaluation, excessive credit growth, and tighter financial conditions jointly forecast higher house-prices-at-risk up to three years ahead. House-prices-at-risk help predict future growth at-risk and financial crises. We also investigate and propose policy solutions for preventing the identified risks. We find that overall, a tightening of macroprudential policy is the most effective at curbing downside risks to house prices, whereas a loosening of conventional monetary policy reduces downside risks only in advanced economies and only in the short-term.”

On cross-country:

• Home ownership is the West’s biggest economic-policy mistake – Its obsession with home ownership undermines growth, fairness and public faith in capitalism – The Economist
• Housing is at the root of many of the rich world’s problems – Since the second world war, governments across the rich world have made three big mistakes, says Callum Williams – The Economist
• How housing became the world’s biggest asset class – It is only a recent phenomenon – The Economist
• Politicians are finally doing something about housing shortages. But will it reduce housing costs? – The Economist
• A decade on from the housing crash, new risks are emerging. Shadow banks originate around half America’s mortgages – The Economist
• Owner-occupation is not always a better deal than renting. Each year American owner-occupiers pay around $200bn in maintenance costs on their homes – The Economist
• Home ownership is in decline. That is not a big cause for concern – The Economist
• Governments are rethinking the provision of public housing. Is it better to give people money or build them houses? – The Economist
• What is the future of the rich world’s housing markets? It is plausible that house prices could persistently rise faster than incomes – The Economist
• Global Residential Cities Index – Q3 2019 – Knight Frank
• Around the world, luxury housing is poised to (mostly) strengthen – Los Angeles Times

On the US:

• Capital Income Taxation with Housing – Federal Reserve Bank of Philadelphia
• Affordable housing is in crisis. Is public housing the solution? – Curbed
• What Would It Take to End Homelessness? – Los Angeles Times
• Would Capping Office Space Ease San Francisco’s Housing Crunch? – Citylab
• A Perverse Way To “Solve” California’s Housing Crisis: People Are Leaving The Golden State – Hoover Institution

On other countries:

• [Hong Kong] Hong Kong’s house prices falling – Global Property Guide
• [Indonesia] The housing market in Indonesia rarely makes big moves – Global Property Guide
• [Ireland] Cash offers may lead mortgage customers to make poor decisions – ESRI – The Irish Times
• [Macau] Macau’s housing market slowing sharply – Global Property Guide
• [Netherlands] Amsterdam’s Attempt to Rein In Property Prices Just Got Harder – Bloomberg
• [South Korea] South Korea’s Moon Vows ‘Endless’ Measures to Cap Property Prices – Bloomberg
• [Switzerland] House prices in Switzerland continue to drop – Global Property Guide
• [United Kingdom] Cambridge tech boom blamed for rising property prices – Financial Times

From the IMF’s latest report on Finland:

“Finnish banks are highly exposed to real estate, but residential and commercial real estate markets are not obviously overvalued. The exposure of domestic banks to real estate market has grown significantly over the last 20 years. The total volume of credit issued by domestic banks to the real-estate and construction sectors stood at 48.5 billion euros in 2018 (above 20 percent of GDP and 50 percent of banks’ receivables from firms and housing corporations), but rates of non-performing real estate loans remain low. In addition, real estate markets do not seem overheated overall, although there are differences across regions and market segments:

• Residential real estate prices have been nearly flat in real terms across the whole country, priceto-income and price-to-rent ratios are relatively low, and construction of new housing units seems to be slowing. However, housing prices in the Helsinki region have increased steadily while in most other parts of the country prices are falling (…).

• Commercial real estate (CRE) valuations also do not appear stretched overall, but aggregate price dynamics mask significant differences across regions and submarkets. In the prime Helsinki office segment, limited supply means that rents are increasing, but they remain below the levels observed in other European capitals. By contrast, prices of retail properties have declined, given the brisk pace of growth in e-commerce and new supply in the Helsinki area. There are ongoing efforts to collect more data for a more precise assessment of CRE-related vulnerabilities in the financial sector, but data to monitor developments in CRE markets remain insufficient.

However, the increase and the composition of household debt create borrower-side vulnerabilities. While the debt-to-income ratio remains far below that of Denmark, Norway and Sweden, it has increased in recent years, driven by large annual increases in consumer credit and housing company loans. The share of highly indebted households is also elevated relative to levels observed in the past (although it has been stable in recent years). One concern is that financing the purchase of real estate through shares in a housing company masks risks to home owners and can make higher prices appear more affordable than they truly are.10 In addition, the majority of housing loans carry variable rates.

The authorities are taking steps to address these weaknesses. In particular, a government appointed working group has recommended a comprehensive cap on the debt-toincome (DTI) ratio, limits on the indebtedness of housing companies, and shortening the maximum maturity of mortgages and housing company loans. Crucially, the DTI limit would cover all borrower’s debts, including housing company loans. The working group proposes that the DTI limit be 450 percent; anticipating cases in which higher leverage could be affordable for some borrowers, it also proposes an exemption to allow banks a share of borrowers with higher debt ratios. These would be significant improvements and also in line with recent recommendations by the European Systemic Risk Board. The parliamentary discussions on these proposals are set to begin in 2020. In addition to the working group recommendations, an electronic registry of housing company shares is scheduled to be operational by the end of 2022. The registry will include full ownership information and will therefore make it easier to assess risks of investing in housing companies.”

 

From the IMF’s latest report on Peru: