High house prices may be global systemic risk

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Household Income ◽  
House Prices ◽  
House Price ◽  
Content Type ◽  
Price Boom ◽  
Advanced Economies ◽  
The Us ◽  
Property Markets

Subject The rise in global house prices. Significance In the first quarter of 2015, the global house price index, aggregating prices in 52 countries, was at about the same level as in early 2007, according to IMF data. This recovery has occurred in a period of wage gains in most emerging markets (EMs), but little or no growth in household income across most advanced economies. Living costs excluding housing have stagnated and interest rates have been exceptionally low. Yet US interest rates are rising now and global prices are unlikely to keep falling beyond 2016, while many EMs have slumped into recession. As households are hit by more adverse trends, property markets and the related sectors will be affected. Impacts The EM house price boom will be curbed by slowing income growth and weaker economic prospects. High house-prices-to-household-income ratios and household debt might require the introduction of macroprudential tools. The US housing market will stay affordable compared to its long-term average and to Europe's.

scholarly journals Money and credit during normal times and house price booms: evidence from time-frequency analysis

Empirica ◽  
2019 ◽  
Vol 47 (4) ◽  
pp. 835-861
Author(s):  
Maciej Ryczkowski
Keyword(s):  
Great Recession ◽  
House Prices ◽  
House Price ◽  
Industrialized Countries ◽  
Time Frequency ◽  
The Great Recession ◽  
Time Period ◽  
Price Boom ◽  
The Us ◽  
Short Run

Abstract I analyse the link between money and credit for twelve industrialized countries in the time period from 1970 to 2016. The euro area and Commonwealth Countries have rather strong co-movements between money and credit at longer frequencies. Denmark and Switzerland show weak and episodic effects. Scandinavian countries and the US are somewhere in between. I find strong and significant longer run co-movements especially around booming house prices for all of the sample countries. The analysis suggests the expansionary policy that cleans up after the burst of a bubble may exacerbate the risk of a new house price boom. The interrelation is hidden in the short run, because the co-movements are then rarely statistically significant. According to the wavelet evidence, developments of money and credit since the Great Recession or their decoupling in Japan suggest that it is more appropriate to examine the two variables separately in some circumstances.

scholarly journals Liquidity, interest rates and house prices in the euro area: a DSGE analysis

2016 ◽  
Vol 9 (1) ◽  
pp. 4-25 ◽  
Author(s):  
Margarita Rubio ◽  
José A. Carrasco-Gallego
Keyword(s):  
Interest Rates ◽  
Monetary Union ◽  
Euro Area ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Dsge Model ◽  
Content Type ◽  
The Core ◽  
Dynamic Stochastic

Purpose This study aims to build a two-country monetary union dynamic stochastic general equilibrium (DSGE) model with housing to assess how different shocks contributed to the increase in housing prices and credit in the European Economic and Monetary Union. One of the countries is calibrated to represent the core group in the euro area, while the other one corresponds to the periphery. Design/methodology/approach In this paper, the authors explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, they analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to both economies. Findings The authors find that a combination of an increase in liquidity in the euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, contributed to an increase in house prices in the euro area and a stronger credit growth in the peripheral economies. Originality/value This paper represents the theoretical counterpart to empirical studies that show, through macroeconometric models, the interrelation between liquidity and other shocks with house prices. Using a DSGE model with housing, the authors disentangle the mechanisms behind these empirical findings.

scholarly journals A dynamic model for housing price spillovers with an evidence from the US and the UK markets

2018 ◽  
Vol 2 (1) ◽  
pp. 70-81 ◽  
Author(s):  
Alper Ozun ◽  
Hasan Murat Ertugrul ◽  
Yener Coskun
Keyword(s):  
New York ◽  
Real Estate ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Housing Markets ◽  
Content Type ◽  
Real Estate Markets ◽  
Country Level ◽  
The Us

Purpose The purpose of this paper is to introduce an empirical model for house price spillovers between real estate markets. The model is presented by using data from the US-UK and London-New York housing markets over a period of 1975Q1-2016Q1 by employing both static and dynamic methodologies. Design/methodology/approach The research analyzes long-run static and dynamic spillover elasticity coefficients by employing three methods, namely, autoregressive distributed lag, the fully modified ordinary least square and dynamic ordinary least squares estimator under a Kalman filter approach. The empirical method also investigates dynamic correlation between the house prices by employing the dynamic control correlation method. Findings The paper shows how a dynamic spillover pricing analysis can be applied between real estate markets. On the empirical side, the results show that country-level causality in housing prices is running from the USA to UK, whereas city-level causality is running from London to New York. The model outcomes suggest that real estate portfolios involving US and UK assets require a dynamic risk management approach. Research limitations/implications One of the findings is that the dynamic conditional correlation between the US and the UK housing prices is broken during the crisis period. The paper does not discuss the reasons for that break, which requires further empirical tests by applying Markov switching regime shifts. The timing of the causality between the house prices is not empirically tested. It can be examined empirically by applying methods such as wavelets. Practical implications The authors observed a unidirectional causality from London to New York house prices, which is opposite to the aggregate country-level causality direction. This supports London’s specific power in the real estate markets. London has a leading role in the global urban economies residential housing markets and the behavior of its housing prices has a statistically significant causality impact on the house prices of New York City. Social implications The house price co-integration observed in this research at both country and city levels should be interpreted as a continuity of real estate and financial integration in practice. Originality/value The paper is the first research which applies a dynamic spillover analysis to examine the causality between housing prices in real estate markets. It also provides a long-term empirical evidence for a dynamic causal relationship for the global housing markets.

Policy will cut the risk of booming house prices

2021 ◽  
Keyword(s):  
Financial Stability ◽  
House Prices ◽  
House Price ◽  
Central Banks ◽  
Price Inflation ◽  
Content Type ◽  
Reserve Bank ◽  
Mortgage Backed Securities ◽  
The Us ◽  
The Government

Significance The government in New Zealand, where the market is particularly buoyant, was the first to react in February. It now requires the Reserve Bank to consider house prices when setting monetary policy. Other governments and central banks have shown little sign of following suit. Impacts Calls are rising for the US Federal Reserve to taper its purchases of mortgage-backed securities, but it will remain cautious. Rising financial stability risks and house price booms increase the risk of insolvency for borrowers and non-performing-loans for banks. Higher house prices add indirectly to consumer price inflation if they push up rents, but this link takes time to materialise.

LIBOR, base rate spreads and the UK housing market

2015 ◽  
Vol 8 (1) ◽  
pp. 118-134 ◽  
Author(s):  
Martin Hinch ◽  
Jim Berry ◽  
William McGreal ◽  
Terry Grissom
Keyword(s):  
Time Series ◽  
Interest Rates ◽  
House Prices ◽  
House Price ◽  
Base Rate ◽  
Percentage Change ◽  
Content Type ◽  
Change Models ◽  
The Uk ◽  
The Impact

Purpose – The purpose of this paper is to analyse how London Interbank Offered Rate Index (LIBOR) and the spread between LIBOR and the base rate of interest as set by the Bank of England (BoE) influences the variation in house prices in the UK. Design/methodology/approach – This paper uses monthly data over a long time series, since 1986, to investigate the relationships between house price and LIBOR. Data are drawn from several different sources to include housing, financial and macro-economic variables. The time series is sub-divided into a series of splines based on stages in the economic and property market cycle. Both value-based and percentage change models are developed. Findings – The results show that BoE base/LIBOR margin variable has a strong positive and significant effect on house price; however, the percentage change model infers a weaker and inverse relationship. The spline analysis re-emphasised the significance of the BoE base/LIBOR margin variable. Where variation between base rates and LIBOR is reduced, a significant positive effect can be observed in the average house price; however, where significant variation exists, the BoE base/LIBOR margin has little effect and LIBOR itself becomes a significant driver. Research limitations/implications – The results highlight that the predictive qualities of the BoE base/LIBOR margin, as the contribution of this margin to the explanation of house price, exceeds both the base rate and LIBOR variables individually. Also highlighted is the contribution of unemployment to the explanation of house price. In both the value and percentage change models, unemployment is shown as a negative and highly significant contributor. Originality/value – Previous papers have demonstrated the important linkage between house price and interest rates, the originality in this paper lies in examining the impact of LIBOR and the spreads between LIBOR and base rate as key variables influencing variation in UK house prices.

Participation and productivity will drive long run GDP

2018 ◽  
Keyword(s):  
Interest Rates ◽  
Developed Countries ◽  
Living Standards ◽  
Lower Growth ◽  
Secular Stagnation ◽  
Content Type ◽  
Long Run ◽  
Advanced Economies ◽  
Labour Participation

Subject OECD long-run growth projections are predicated on the 'secular stagnation' argument. Significance The OECD has sharply reduced its outlook for long-term rich-world growth with interest rates rising commensurately slower. Moreover, the International Labour Organization projects even weaker workforce growth than the OECD in the advanced economies in the 2020s. Impacts Trade among developing countries accounts for near 30% of all trade (from 10% in 1995) and will soon top trade among developed countries. Efforts to raise labour participation, quality and productivity are key to raising living standards. Lower growth makes it harder to stabilise debt-to-GDP ratios, just as ageing rich-world populations raise pension and health costs.

Adoption of yield-curve control could aid US recovery

2020 ◽  
Keyword(s):  
Interest Rates ◽  
Yield Curve ◽  
Balance Sheet ◽  
Quantitative Easing ◽  
Government Bonds ◽  
Content Type ◽  
Forward Guidance ◽  
Reserve Bank ◽  
The Us

Subject Yield-curve control. Significance The US Federal Reserve (Fed) is contemplating yield-curve control (YCC), a policy pursued by the Bank of Japan (BoJ) and Reserve Bank of Australia (RBA) alongside quantitative easing (QE) and forward guidance. A central bank does this by capping the yields on government bonds of a chosen maturity through unlimited bond purchases. This supports the economy by reducing borrowing costs for financial institutions, households and businesses. Impacts By providing transparency over a central bank’s actions, YCC would be likely to reduce the volatility of long-term interest rates. YCC adds to the Fed balance sheet; the Fed will need a credible exit strategy to cut market volatility and the risk of Fed capital losses. A sharp uptick in inflation may put upward pressure on long-term yields, necessitating higher Fed purchases to maintain its targeted peg.

Alternative strategies to change negative output gaps rate in China

2014 ◽  
Vol 52 (7) ◽  
pp. 1319-1329
Author(s):  
Bing Xu ◽  
Xiaowen Hu
Keyword(s):  
Interest Rates ◽  
House Prices ◽  
House Price ◽  
Output Gap ◽  
Control Variables ◽  
Alternative Strategies ◽  
Content Type ◽  
Price Adjustments ◽  
Output Gaps ◽  
Negative Output

Purpose – The purpose of this paper is to find alternative strategies to change negative output gaps in China. Design/methodology/approach – A path Philips curves approach is proposed to investigate output gaps, which develops hybrid Philips curves with the control variables of money, house prices and interest rates. Findings – An alternative strategy to stop the decline in output gaps rate is to perform interest rate, house price, and money growth rate about 3, 1 and 15 percent, respectively. The results also indicate that only one of monetary increase, changes in interest rates, and house price adjustments are difficult to change the negative output gap. Practical implications – Alternative strategies cannot only change the negative output gap, but also succeed in pushing the inflation rate down to 3 percent. Originality/value – This study provides a new path Philips curves to simulate how the macroscopic control variables influence output and inflation. It provides a useful insight for stopping the decline in output gaps.

Macroeconomic drivers of London house prices

2018 ◽  
Vol 36 (6) ◽  
pp. 539-551 ◽  
Author(s):  
Petros Stavrou Sivitanides
Keyword(s):  
Error Correction ◽  
House Prices ◽  
House Price ◽  
Policy Implications ◽  
Empirical Literature ◽  
Annual Data ◽  
Price Inflation ◽  
Partial Adjustment ◽  
Content Type

Purpose The purpose of this paper is to validate and quantify the effect of key macroeconomic drivers on London house prices using annual data over the period 1983–2016. Design/methodology/approach Within this context, the authors estimate alternative error-correction and partial-adjustment models (PAMs), which have been widely used in the empirical literature in modelling the slow adjustments of house prices to demand and supply shocks. Findings The results verify the existence of a strong long-term relationship between London house prices and key macroeconomic variables, such as UK GDP, London population and housing completions. A key finding of the study relevant to the debate on the causes of the housing affordability crisis is that the results provide little evidence in support of the argument that user demand, which is captured in the author’s model by Greater London population, may have had a diminished role in driving house price inflation in London. Practical implications The practical and policy implications of the results are that increased homebuilding activity in London will undoubtedly help limit house price increases. Also, any potential reduction of immigration and economic growth due to Brexit will also have a similar effect. Originality/value The originality of this research lies in the use of annual data that may better capture the long-term effect of macroeconomic drivers on house prices and the estimation of such effects through both error-correction and partial-adjustment models.

scholarly journals No Price Like Home: Global House Prices, 1870–2012

2017 ◽  
Vol 107 (2) ◽  
pp. 331-353 ◽  
Author(s):  
Katharina Knoll ◽  
Moritz Schularick ◽  
Thomas Steger
Keyword(s):  
Twentieth Century ◽  
World War Ii ◽  
House Prices ◽  
House Price ◽  
World War ◽  
Land Prices ◽  
Long Run ◽  
Price Boom ◽  
Advanced Economies ◽  
Cross Country

How have house prices evolved over the long run? This paper presents annual house prices for 14 advanced economies since 1870. We show that real house prices stayed constant from the nineteenth to the mid-twentieth century, but rose strongly and with substantial cross-country variation in the second half of the twentieth century. Land prices, not replacement costs, are the key to understanding the trajectory of house prices. Rising land prices explain about 80 percent of the global house price boom that has taken place since World War II. Our findings have implications for the evolution of wealth-to-income ratios, the growth effects of agglomeration, and the price elasticity of housing supply. (JEL C43, N10, N90, R31)

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