The Unassuming Economist

Global property’s goody-two-shoes are in trouble

“A housing crash sent the global economy into recession between 2007 and 2009. But three countries—Australia, Canada and Sweden—cruised through the commotion. Even as property prices plummeted elsewhere, all three recorded double-digit growth.” read more here.

The latest release of the S&P CoreLogic Case-Shiller Indices showed that cities in Florida reported the highest annual house price gains among the 20 cities covered by the indices. Miami led the way with a 18 ½ % increase, closely followed by Tampa with a 17% percent increase.

A new NBER Working Paper “Florida (Un)Chained” by Charles W. Calomiris and Matthew S. Jaremski, available here, looks at Florida’s land boom and crisis of mid–1920s, which can be helpful in drawing parallels to the present. Below we present the figure 2 from their paper that depicts East Cost Railroad and Monthly Building permits by city.

The authors reach the following conclusions –

·         Florida’s unique land markets and banking system explains why developers and not just depositors suffered great losses.

·         The crisis can be explained using bounded rationality as people behaved reasonably given the information available to them. Individual agents did not invest in obtaining further information that may have led to different decisions and behavior.

·         National advertisements for Florida land led to many of these properties being purchased from a distance. Buyers did not have information regarding the extent of supply – or the quality of land. Given the lack of information on aggregate activity, supply began to exceed the potential demand. Advertisements often mentioned recent price rises to entice buyers with prospects of future returns.

·         From a banking perspective, regulators and bank examiners did not prevent hidden risks from insider lending to be built into the system. These hidden risks ended up toppling many of these banks. Some banks indulged in fraudulent activities by hiding high levels of loan risks. Figure 7 from their paper provides the ratio of real estate loans to total loans in state bank by county.

·         Will there be a crisis again and will it be different? The authors say that all crises are not alike, and they must be studied as distinct historical phenomena.

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

• Housing Slump Set to Give Fed an Inflation-Fighting Assist. A slowdown in new household growth could ease prices and rents, but rising wages cause worry – Wall Street Journal
• Inflation Adjusted House Prices 3.8% Below Peak. Houses are the least “affordable” since 1982 when 30-year mortgage rates were over 14% – Calculated Risk
• Lawler: Update on Rent Trends. And an Update on New Cleveland Fed Rent Paper – Calculated Risk
• US House Prices by Census Division: Persistence, Trends and Structural Breaks – IDEAS
• Mortgages are still confusing… and it matters – How borrower attributes and mortgage shopping behavior impact costs – Fannie Mae
• Case-Shiller: National House Price Index “Continued to Decline” to 9.2% year-over-year increase in October. FHFA: “House prices were flat nationwide in October, experiencing a 0.0 percent change from the previous month” – Calculated Risk
• Home Prices Fell in October for Fourth Straight Month. A jump in mortgage rates is curbing demand, with many economists expecting prices to continue sliding from their spring peaks – Wall Street Journal
• Double-digit U.S. home price growth streak skids to an end – Reuters

On the US—other developments:    

• The 2022 housing market: A tale of two halves. Less rate-dependent mortgage products, home equity loans, HELOCs were the name of the game in 2022 as the industry shrank – Housing Wire
• New Home Sales Increased in November; Previous 3 Months Revised Down Sharply. New Home Sales Increase to 640,000 Annual Rate in November – Calculated Risk
• November New Home Sales Up as Interest Rates Fall Back – NAHB
• Multifamily Construction Continues to Expand Outside Metro Core Areas – NAHB
• What Would It Take to Turn More Offices Into Housing? Vast amounts of empty real estate are a crisis for building owners. But some politicians and business leaders hope they can be converted into something new — and transform downtown neighborhoods. – New York Times
• Our Top 10 blogs of 2022 – Harvard Joint Center for Housing Studies
• Top Posts of 2022: Housing Market at Inflection Point as Builder Confidence Continues to Fall – NAHB
• Final Look at Local Housing Markets in November. Year-over-Year: Sales Down Sharply, Inventory Increased, New Listings Down – Calculated Risk
• Existing Low-Rate Mortgages Blunt Impact of Recent Rate Surge – Dallas Fed
• Two Graphs Give Insight Into The Housing Market Present And Future – Seeking Alpha

On other countries:  

• [Australia] IMF sees potential for imminent ‘sizeable’ bust in Australia’s housing market. Report warns homes keep getting less affordable, and Australia has one of the highest rates of people spending more than 40% of their income on housing – The Guardian
• [Hong Kong] Hong Kong’s Tiniest Apartments Take Biggest Hit in Housing Slump. Nano-flat sales struggle most as buyers opt for bigger options. Developers only able to sell 48% of studio units in 11 months – Bloomberg
• [India] India’s Upscale Housing Market Strengthens, Defying Global Trend. Affluent Indians who throttled back on spending during the pandemic are returning to the country’s housing market in force – Wall Street Journal
• [Ireland] Irish property: the boom that shows no signs of slowing. While other markets cool off, Ireland is facing a housing shortage that is driving up the cost of renting and buying – FT
• [Latvia] Latvia’s high inflation gives an illusion that house prices are still rising – Global Property Guide
• [Mexico] As Remote Workers Flock to Mexico City, Airbnb and Housing Prices Soar. American and Europeans are using Airbnb to find long-term rentals in Mexico’s capital, pushing housing costs higher and, critics say, forcing out local residents. – New York Times
• [Singapore] Singapore Rents Forecast to Rise at Slower Pace Next Year. Private rents could rise 13% to 16% next year, researcher says. Influx of new private homes could ease rental pressure – Bloomberg
• [Singapore] Singapore’s house prices rising, despite falling demand – Global Property Guide
• [United Arab Emirates] New generation of rich spur boom in Dubai’s luxurious homes market. Demand soars since pandemic, with owners inundated with requests to sell homes with swimming pools and terraces – FT
• [United Kingdom] Experts predict housing market will cool in 2023 as UK enters a recession. The slowdown is expected to intensify with price declines between 5% and 12% – The Guardian
• [United Kingdom] UK banks to ease pressure on mortgage holders as late payments set to surge. Some measures could include switching borrowers to interest-only deals – FT

From Noah Smith:

“With the return of the border crisis and Biden’s plans for a big new immigration reform, it looks like the immigration issue is heating up again. In the coming year we’re probably going to hear lots of very heated arguments from a lot of different angles, and I’m inevitably going to be blogging about some of these. But one aspect of the immigration debate that I feel like I’ve already dealt with pretty well is the question of wages.

A lot of people think immigration lowers wages for native-born Americans. This is true of both immigration opponents, but also of some supporters, who think an influx of workers will help restrain inflation. This is a natural thing to think, since everyone knows that immigration increases labor supply. But what fewer people realize is that immigration also raises labor demand, which tends to cancel out the downward pressure on wages. In late 2020 I wrote a post called “Why immigration doesn’t reduce wages”, in which I explained how this works and listed a bunch of the relevant evidence. I wanted it to be a useful and comprehensive guide that people could come back to again and again.

In this post, I’m going to explain why immigration doesn’t lower wages for native-born people (except possibly a little bit, in a few special circumstances). But before I do that, there’s one thing you really have to understand: No one is going to be persuaded by this post. There are two reasons for this.

First, people don’t really believe social science evidence. It took years and years of empirical research — solid results, almost all pointing in the same direction — just to shift academic economists’ opinions on the effects of minimum wage. The average person, not being an academic economist, has even less of an idea of how reliable social science research is.

Second, in my experience, anti-immigration people are completely set in their belief that immigration should be restricted. It’s their fixed north star. The justifications change — Lower wages! Environmental destruction! Brain drain! Rule of law! Cultural change! — but the policy conclusion never wavers. They know what they want to do.

So this post isn’t going to persuade anti-immigration people to change their stance, and it’s probably not going to persuade many normies to be up in arms about the need to let in more immigrants, either. But it’s still important to write, and not just because I’m a stubborn S.O.B. who will die face-down in the muck fighting for The Empirical Evidence. It’s because in another 20 years or so, when America’s current freakout over identity and nationhood has passed, we’re hopefully going to be ready to let in a bunch of immigrants again. And when that time finally comes, these arguments will matter.”

Continue reading here.

On cross-country:

• Conference: Alternative technics on housing and construction during Covid – REFINE

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

• Mortgage Buydowns Are Making a Comeback. Soaring rates have revived interest in a product that fell out of favor after the financial crisis – Wall Street Journal
• Higher mortgage rates depress U.S. single-family housing starts, building permits – Reuters
• Single-Family Permits Continues On A Downward Trend in October 2022 – NAHB
• US Housing Starts, Permits Fall on Slide in Single-Family Homes. Total new construction slips 0.5%, marking third-straight drop. Permit applications for one-family homes lowest since May 2020 – Bloomberg
• In US housing market, homebuilders are wary of starting new projects. Permits to build new houses fell by double digits in November. – Quartz
• Prepare for US house prices to slump, unemployment to spike, and a recession to set in, Harvard economist Kenneth Rogoff says – Markets Insider
• The Normal Seasonal Pattern for Median House Prices – Calculated Risk
• 3rd Look at Local Housing Markets in November. “Median home prices in the Austin-Round Rock MSA experienced a 0% year over year increase” – Calculated Risk
• 10 facts about U.S. renters during the pandemic – Pew Research Center
• Lawler: Early Read on Existing Home Sales in November. Another Step Down for Sales in November – Calculated Risk
• 4th Look at Local Housing Markets in November; California Sales off 48% YoY. Another step down in sales in November – Calculated Risk 
• Existing Home Sales Decline Further in November – NAHB
• NAR: Existing-Home Sales Decreased to 4.09 million SAAR in November. Median Prices Down 10.4% from Peak in June 2022 – Calculated Risk 
• Existing-Home Sales Dipped 7.7% in November – NAR

On the US—other developments:    

• Why This Housing Downturn Isn’t Like the Last One. A postcrisis mortgage-market makeover and an overhaul of the financial system make a repeat of 2008 unlikely – Wall Street Journal
• Homing in on a Housing Recovery. After a miserable year for housing, some reasons for optimism – Wall Street Journal
• The Push of Big City Prices and the Pull of Small Town Amenities – Philadelphia Fed
• Where Are the Most and Least Affordable Homes? A new study compares median home prices against household income, property taxes and mortgage expenses to determine affordability. – New York Times
• Americans Want More Affordable Housing — Just Not Nearby – Five Thirty Eight
• The Size of the Housing Shortage: 2021 Data – NAHB
• In the US, Owning a Home May Not Lead to a Better Life – Insead
• Biden Administration Calls for 25% Cut in Homelessness by 2025. The Biden administration’s new strategic plan to address homelessness includes a focus on equity and a promise to help cities build more housing. – Bloomberg
• America’s Housing Shortage Crisis, in Two Maps. Chronic NIMBYism has left America’s population centers without enough places to live. – Bloomberg 
• The Homeownership Society Was a Mistake. Real estate should be treated as consumption, not investment. – The Atlantic
• Housing Sentiment in the Fourth Quarter of 2022 – Freddie Mac  
• Nine Percent of New Homes Are Teardowns – NAHB
• Eviction and Poverty in American Cities – Philadelphia Fed
• Evictions in New England and the Impact of Public Policy during the COVID-19 Pandemic – Boston Fed

On China:

• China mulls new measures to support real estate sector – vice premier – Reuters
• China To Correct Past ‘Mistaken’ Housing Policies: Top Economist. Government is changing tone on the property sector: Yao Yang. 2021 policies to curb the sector were ‘mistaken,’ he says – Bloomberg

On other countries:  

• [Australia] The Stench of Failure: How Perception Affects House Prices – NBER
• [Australia] Australia’s housing crisis, largely hidden, is getting worse – Reuters
• [Canada] Cities have to expand for house prices to fall – New Geography
• [Israel] House prices keep soaring, marking record 20.3% rise in a year. Dramatic figure comes as other inflationary pressures ease, with consumer prices rising more slowly – The Times of Israel
• [Sweden] Sweden’s Housing Market Seeks Bottom as Price Drop Continues. HOX index shows decline continued for eighth month in a row. Price drop of 15% from the peak also seen in other recent data – Bloomberg
• [United Kingdom] How UK House Prices Could Fall by 30%. There’s plenty of precedent for a steep decline in ‘real’ values. – Bloomberg
• [United Kingdom] UK house prices expected to fall by 8% next year, says Halifax. Lender says market rebalancing after years of growth, as mortgage rates and cost of living push prices down – The Guardian
• [United Kingdom] Debt charities warn over surging mortgage costs for millions of borrowers. Concerns mount after Bank of England increases interest rates to 3.5 per cent – FT
• [United Kingdom] UK mortgage guarantee scheme extended by a year. Ministers delay closure to help first-time buyers facing high interest rates and fewer borrowing options – FT
• [United Kingdom] House prices in central London fell by a quarter over five years. Expensive areas, hardest hit in real terms, will feel the effects of high mortgage rates in 2023 – FT