Tuesday, April 21, 2015

Re-thinking Housing Markets

Rabah Arezki and I are among the co-editors of a special issue of the Journal of Money Credit & Banking on housing markets that was just published. It has an interesting set of policy papers by experts (Ed Leamer, Susan Wachter, Stijn Claessens, David Miles, Dwight Jaffee, Allan Crawford, John Muellbauer, Philipp Hartmann) and eight academic papers with comments from discussants—including Ed Leamer’s lightly-censored views on various things (including DSGE models). Here for example is Ed on who was to blame for the housing crisis:

“[here’s] my list of culprits who might be to blame for getting so many Americans to buy homes they could not afford at prices that were unsustainable: (i) the Greenspan Fed, (ii) the rating agencies, (iii) the securitizers, (iv) Fannie Mae and Freddie Mac, (v) the mortgage originators, and (vi) Chinese savers. Greenspan has often provided a shorter list: (i) Chinese savers.”

Policy Papers:

On housing & the macroeconomy:

Ed Leamer: “The downturn of 2008–09 has confirmed that: (i) housing is the single most critical part of the U.S. business cycle, (ii) the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later, and (iii) the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so.”

John Muellbauer: “Three themes connecting housing and the macroeconomy are discussed. First, evidence is presented for the property market as one of the drivers of U.S. consumer price inflation. Second, key drivers of house prices are explained to account for the remarkable diversity of international experience. Finally, three potential links between housing, credit, and the financial accelerator are discussed. These are the consumption channel, the investment channel, and feedback between bad loans and risk-spreads via the financial system—and how institutional differences between countries can explain the presence, absence and magnitudes of these linkages.”

Stijn Claessens: [The paper discusses] “(i) house prices cycles and the macroeconomy, (ii) the current state of housing markets, and (iii) what to do about housing bubbles.”

On U.S. vs. Europe; why Canada has avoided a crisis; macropru and beyond:

Susan Wachter: “A house price boom occurred simultaneously in the United States and in a number of European countries from 2003 to 2007, accompanied in each case by an expansion in housing finance. This article considers the role of financial innovation along with incomplete markets in these cycles.”

Dwight Jaffee: “The United States and certain European countries (e.g., Ireland and Spain) have recently experienced serious distress in their residential mortgage markets. Public policy has responded with interventions to limit the deadweight costs of mortgage foreclosures, but with limited success. There are also open questions with respect to long-term reforms in mortgage market structures. In this paper, I make use of the important differences that exist between U.S. and European mortgage markets to help identify those aspects of residential mortgage markets that are most in need of reform.”

Philipp Hartmann: “An increasing number of studies suggest that borrower-based regulatory policies, such as reductions in loan-to-value or debt-to-income limits, can be effective in leaning against real estate booms. But many of the new macroprudential policy authorities in Europe do not have clear powers to determine them. Moreover, the cross-border spillovers they may give rise to suggest the establishment of a well-defined macroprudential coordination mechanism for the single European market.”

Allan Crawford: “This article discusses elements of Canada’s policy framework that contributed to the relatively good performance of its mortgage market in recent years, including supervisory practices and mortgage underwriting standards. Lender recourse and the nondeductibility of mortgage interest payments played a complementary role. Ongoing policy challenges are also identified, including the need for monitoring to ensure the current prolonged period of low interest rates does not lead to levels of debt and house prices that create future instability in housing and mortgage markets.”

David Miles: [The paper explores] “ways in which volatility in the housing market … can be reduced. Alternatives to standard debt contracts to finance house purchase are considered. A form of equity loan, where repayments are linked to the value of the house, have major advantages in terms of risk reduction. The way in which such loans can be structured is analyzed.”

There are also eight academic papers plus comments from discussants. The editors offer an executive summary of these papers.


Arezki et al: “This article provides an introduction to the JMCB special issue on housing bubbles, the global financial crisis, and the ensuing recessions in countries that experienced housing busts. We focus on five themes that are important for policymakers and researchers alike: the domestic and international factors driving housing booms and busts, the relevance of the housing sector for the real economy, how monetary policy should react to housing booms and busts, how housing and mortgage finance reform could affect financial stability, and the broad lessons learned for macroeconomics and macroprudential policy.”

Link to special issue of JMCB on housing: http://onlinelibrary.wiley.com/doi/10.1111/jmcb.2015.47.issue-S1/issuetoc 

The issue was based on the proceedings of a conference, the first of three conferences that were organized as part of the Global Housing Watch initiative under IMF Deputy Managing Director Zhu. Ungated versions of the conference papers and some of the panel discussions, plus a keynote address by Bob Shiller, are available here: http://www.dallasfed.org/research/events/2013/13housing.cfm


Tuesday, April 7, 2015

House Prices in the United States

The National Association of Realtors takes a look at single-family median home prices in metro areas of 16 teams playing baseball Opening Day on April 6, 2015.


Thursday, April 2, 2015

House Prices in Qatar

"Real estate prices accelerated last year, despite the sharp drop in oil prices," according to the IMF's latest annual report on Qatar. The report points out that "price growth gathered speed especially in the second half of 2014, with the December real estate values up by 35 percent year-on-year. Staff calculations based on transaction-level data from the Ministry of Justice point to the following broad trends:

  • While the total number of real estate transactions has decreased from the 2013 peak, the total value of real estate transactions has dramatically increased, reflecting higher average prices and compositional changes. 
  • Land prices appear to have increased at the fastest pace, followed by villas where land is typically the most important cost component. Price increases have been slower for apartments and villas with extension (e.g., a guest house).
  • While the Doha market experienced intermittent price hikes, price growth was recently strongest outside of Doha, given development projects and urbanization. For example, prices in Al Wakrah, a previously underdeveloped neighbor to Doha, have notably risen over the past year in light of its proximity to the new Hamad International Airport and the planned Doha Expressway route. Al Daayen has similarly experienced rapid price growth, due in part to its proximity to Lusail City and various 2022 World Cup projects."


Tuesday, March 31, 2015

Global Housing Watch Newsletter


  • The Newsletter has an interview with Lars Svensson on when and how to deal with housing booms. Svensson lays out the policy options with his characteristic clarity. Read the full interview and the newsletter here.
  • The Quarterly Update shows why averages can sometimes be misleading—the Global House Price Index shown on the first page continues a slow and boring uptick, but turn the page and you see it’s a story of two very different halves. Read the full note here

Friday, March 27, 2015

Inequality in China

WSJ's Ian Talley reports on an IMF working paper. According to Talley: " A widening gap between China's rich and poor makes "one of the most unequal countries in the world," according to a new working paper published by the International Monetary Fund.

Authors Serhan Cevik and Carolina Correa-Caro write that the rich are gleaning most of the fruits of the transition from a system of centrally-planned socialism to a market-oriented economy.

Although per-capita income has grown and the number of people living on less than a $1.25 a day has plummeted, income inequality has skyrocketed, the economists said. The top quintile of earners now pull in nearly half of total income while the poorest quintile of earners account for under 5%.

"China's widening income inequality is largely a reflection of faster income growth among the rich, rather than stagnant living standards among the poor," the two economists said.

With an estimated 2.4 million millionaire households, China now has more than any country but the U.S.

China's credit-fueled investment and export-led development model are likely the primary drivers of the sharp increase in income inequality over the last three decades, they said.

Beijing's economic strategy has aimed at higher growth rates. Although that effort may have lifted many Chinese out of poverty, the two economists said there's mounting evidence that the widening income gap could weigh on future growth. That, they said, could come "with significant social consequences, especially in a country like China aiming to move beyond the 'middle income' status."

To relieve those potential pressures, the two economists recommend ramping up taxes to pay for a redistribution of income: raising taxes on higher earners, broadening the personal tax and imposing a value-added tax on services. At the same time, Beijing could lower labor taxes that hit low- and middle-income earners, they said."