The IMF Launches “Global Housing Watch”

Housing prices are on the march again across the globe, and the International Monetary Fund (IMF) is concerned. In response, the IMF has launched a site it calls the “Global Housing Watch.”

Here is the introduction:

“Housing is an essential sector of every country’s economy, but it has also been a source of instability for financial institutions and countries. Understanding the drivers of house price cycles, and how to moderate these cycles, is important for economic stability.

 

The new indicators are an important step in assembling country-level data on housing trends in one location, allowing for more transparent cross-country and historical comparisons. The hope is to prompt actions by policymakers to moderate housing cycles.”

Housing has been a natural beneficiary of loose monetary policies. The irony or dilemma in extremely expensive countries like the United Kingdom, Canada, France, and Australia is that overall inflation readings are low. Accordingly central banks are maintaining extremely accomodative monetary policies in these countries. Thus, the traditional brakes for the housing market, higher rates and tighter monetary policy, are absent and nowhere on the horizon. It is no accident that the Bank of Canada and the Bank of England are now talking more loudly about using macroprudential policies to contain housing markets and enforce standard of financial stability. Here are the related recommendations coming from the IMF: 

“We do have a set of policy tools that can help – sometimes these are referred to as “Mip-Map-Mop.” Microprudential (Mip) policies look at an individual bank’s balance sheet, for example to determine if it is making too many real estate loans. But it could be that the individual banks are doing what seems healthy for them, but what the banking system as a whole is doing needs results in an unhealthy growth in lending.

 

So, in addition, macroprudential regulations (Map), operating at the level of the financial sector as a whole, come into play. The most commonly used measures cap how much individuals may borrow relative to their income. These prudential measures are being increasingly used by countries to prevent an unsustainable build-up in debt.

 

Finally, there is the monetary policy (Mop) that involves the central bank raising interest rates if they want to cool off the housing sector. This can be tricky, because sometimes the economy is weak but the housing sector is booming, and raising the interest rate can harm the overall economy.

So, basically, we need to share experience across countries, to look at trends, use our judgment, and apply policies that that may help prevent problems in the housing sector.””

I will be keeping an eye on this website and the twitter hastag #HousingWatch. I expect some revealing and fascinating data to flow through here. Here are the charts posted on the site showing the relative valuations of housing across the globe. I highly encourage the reader to go directly to the website and browse for yourself.  I also hope to write some pieces covering the housing markets in the UK, Canada, and Australia in particular in coming weeks and months.

Note well that the U.S. is NOT in bubble territory (in the aggregate)….

 

 

 

 

 

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Hong Kong Property Market Defies Tame Inflation

The Hong Kong Monetary Authority just published its Quarterly Bulletin on economic conditions in Hong Kong and around the planet. The HKMA concludes that inflation is tame overall:

“Inflationary pressure eased further, as the underlying inflation rate tapered to a year-on-year 3.8% in October from 4.5% in June. The sequential pressure moderated slightly to an annualised 3.1% on a three-month-on-three-month comparison. This reflected waning food price inflation and moderation in price increases for other major CPI components.”

The slowly growing economy is expected to continue to keep inflation at bay. However, this calm surface masks a still roiling property market. Indeed, the HKMA believes the property market is well ahead of the economy given meager gains in income:

“In the property market, the disconnect between housing prices and economic fundamentals appeared to have become more acute. In contrast to tepid income growth, housing prices surged by a cumulative 23.2% in the year to October. Housing affordability deteriorated as a result, with both the price-to-income ratio and the mortgage payment-to-income ratio rising to their post-1997 highs.”

This is likely a matter of cheap money finding a home somewhere. In this case it is the property market. The government has responded to the growing problem with a series of taxes that seem to be moderating demand.

The HKMA places partial blame for inflationary pressures in the property market on the the Federal Reserve’s recent rounds of quantitative easing:

“Risks to inflation have also increased with additional quantitative easing in the US, through its potential impact on global commodity prices and local property prices.”

Note that the HKMA recognizes that QE in the U.S. will drive commodity prices higher. This dynamic is something Ben Bernanke has refused to acknowledge. With the Federal Reserve adding a “stealth” QE4 in the December statement, I will look to commodity prices to catch bids in 2013…and for central banks to work to try to counter-act the moves of the Federal Reserve.


KB Home faces rising input costs

In its latest earnings report, KB Home (KBH) reported rising input costs. Prices for labor, material, and land are all on the increase. In “KB Home ‘On Offense’ As Its Housing Markets And Pricing Power Strengthen“, I reported the following, including quotes from the Seeking Alpha transcript:

“While KBH is bullish about its business, it is wary about its costs. Costs increased about $1,200 a house, but KBH was able to offset that with pricing. I was a bit surprised that business is strong enough that KBH can actually wield some pricing power, passing on increased costs to its customers. Here is how KBH described the source of the cost increases and their likely impact:

‘We are starting to experience higher costs for labor and direct construction materials such as lumber, concrete and drywall. Through the end of the second quarter, the impact of these higher costs has been offset by sales price increases, which we have implemented in a majority of our communities during the first 6 months of the year. We believe incremental price increases can continue to offset any further cost increases for the remainder of 2012, which should not result in margin erosion but maybe a headwind in relation to our margin expansion plans.’

Moreover, land prices are also on the rise. KBH says that land sellers were the first to detect the improvement in the housing market and they are now able to exert some pricing power:

‘While there’s no question the housing markets are getting better, the land sellers figured it out first. So land prices are going up every bit as fast, if not faster, than home prices are.’

These are signs that the housing market is finally starting a sustained recovery, starting in select markets. For more details on earnings for KBH see “KB Home ‘On Offense’ As Its Housing Markets And Pricing Power Strengthen.”


The costs of raising children in the U.S. continue to climb

On June 14th, the United States Department of Agriculture (USDA) released its 2011 cost estimates for raising children in the U.S. (see “A Child Born in 2011 Will Cost $234,900 to Raise According to USDA Report“). According to this report, the average cost of raising a child in the U.S. rose 3.5% from 2010 and rose 22.5% from 1960 (in 2011 dollars), the first year these data were collected. (Note the USDA cautions that its methodology has changed over the years so comparisons between now and 1960 are not “precisely comparable). The share of expenditures has changed dramatically in certain categories like child care and education, food, and health care. The following chart is from the end of the publication (click image for a larger view), and it demonstrates the big differences in how children are raised now versus 50 years ago:

Expenditures on a child from birth through age 17, total expenses and budgetary component shares, 1960 versus 2011

Expenditures on a child from birth through age 17, total expenses and budgetary component shares, 1960 versus 2011

The amount families spend on children varies greatly based on household income, so these averages hide even more interesting stories. For example:

“A family earning less than $59,410 per year can expect to spend a total of $169,080 (in 2011 dollars) on a child from birth through high school. Similarly, middle-income parents with an income between $59,410 and $102,870 can expect to spend $234,900; and a family earning more than $102,870 can expect to spend $389,670.”

It is clear from the report that the costs increase according to income because of choices families make. Thus, it is not quite accurate to say child-rearing gets more expensive with income. Instead, families tend to choose to spend more on their children the more income at their disposal.

Read/download the full report here.


Euro-flight to London Should Further Pressure Property Prices

Reuters reports that Greeks and Spaniards trying to escape economic and currency woes in their native countries are running to London in increasing numbers. The wealthier of these immigrants are snapping up property in London in attempt to protect their assets. The (average?) price for prime central London properties has increased by 44% over the last three years. Prices in London as a whole have increased at half that rate.

For more details and stories from specific immigrants see “Euro zone turmoil boosts London property stampede.”

 


Million-dollar homes appreciating in Silicon Valley

In “IPOs Boost Demand for Silicon Valley Mansions“, Bloomberg attributes the robust housing market in Silicon Valley to the increasing numbers of instant millionaires benefiting from IPOs. The price gains are startling given the second-dip recession that has descended upon so many other neighborhoods across America (for the latest see “US Housing Crisis Is Now Worse Than Great Depression.”)

“The real estate gains in the valley, located primarily in the San Jose metropolitan area, are mostly occurring in towns where million-dollar values are already the norm. The median price in Cupertino gained 12 percent last month from May 2010 to $1.08 million, and values in Saratoga rose 4.7 percent to $1.62 million, according to San Diego-based DataQuick…

…The median price of single-family houses sold in Palo Alto, home of Facebook Inc., climbed 20 percent in May from a year earlier to $1.63 million, the biggest jump since 2008, according to preliminary figures from research company DataQuick. In Mountain View, the base of LinkedIn Corp., prices rose 3.1 percent to $957,500, the ninth year-over-year gain in 12 months.”


Vancouver Housing Keeps On Soaring

In “Homes: Chinese Buyers Make Vancouver Pricier Than NYC“, Bloomberg provides a startling and illuminating account of the dynamics in Vancouver’s over-heated real estate market. The statistics are absolutely astounding. Here is a sample:

“Sales of detached homes, townhouses and condominiums in metropolitan Vancouver jumped 70 percent in February from January, to 3,097 units from 1,819, and were up 25 percent from a year earlier, according to the Real Estate Board of Greater Vancouver. In March, sales climbed 32 percent from February, to just shy of a record for the month of 4,371 transactions set in 2004. Sales increased by 80 percent from two years ago.”

“In 2010, Vancouver had the third-highest housing costs among English-speaking cities worldwide, according to Canada’s Frontier Centre for Public Policy. Only Hong Kong and Sydney, another magnet of Asian immigration, were more expensive. Vancouver’s median home price of C$602,000 ($618,000) was 9.5 times the annual median household income of C$63,100, the group said in a study released Jan. 24. Canada had a 4.6 national multiple, making it ‘seriously unaffordable,’ while the U.S. at 3.3 was ‘moderately unaffordable,’ the study showed. To be affordable, the multiple must be 3 or less.”

The rest of the article explains how buyers from China are helping to drive prices in Vancouver as they escape property restrictions back home. Given three waves of Chinese buyers have descended upon Vancouver since 1990, market participants must feel like everything is normal. As an outsider, this market seems to have all the classic markers of a bubble. As long as the money keeps flowing, the market will remain inflated…