NOva Scotia’s The largest city is known for a few things: a big national security conference that takes place every autumn; A massive explosion, in 1917, wreaked havoc; And a small but impressive wine industry. Maybe something else will be known soon. Home prices in Halifax have risen nearly 50% since December 2019, according to Knight Frank, a property company – a boom that has only improved in a handful of cities. Sit down with a Haliganian and for a moment they will be confused as to how their city became so expensive.
Local factors play a role. Some people who moved to distant Alberta to work in the oil industry lost their jobs in 2020 and returned home. Out-of-town residents are investing in local property in the hope that Eastern Canada will become a more desirable place to live with climate change. Nevertheless, the broader trend is reflected across many parts of the world (see Chart 1). The IMFIts Global House-Price Index, which has been released in real terms, is well above the peak reached before the 2007-09 financial crisis. The share price of American housebuilders rose 44% last year, compared to 27% of the overall stock market. From Halifax’s mother-and-pop shop to supermodel, estate agents look alike at Netflix’s “Selling Sunset” in Los Angeles.
Now people are wondering if the team is going to end. The government is stopping the stimulus. Now that the foreign holidays are back and the restaurant is open, people no longer have the extra cash to splurge on property. Concerned about rising inflation, central banks are tightening monetary policy, including raising interest rates. In its latest Financial-Stability Report IMF Warned that “the negative risks to home prices seem to be significant”, and that if these were implemented, prices in rich countries could fall by as much as 14%. In New Zealand, where prices rose 24% last year, the central bank blunt. “Home price levels”, it says, are “volatile”.
But what is it? Certainly there has been little evidence so far that austerity in recent monetary and monetary policy has been the cause of the recession. In the third quarter of 2021, global home prices rose to an all-time high. Although New Zealand’s central bank has raised interest rates by 0.5 percentage points since October, there are only mild indications that house-price growth is slowing. Property prices in the Czech Republic are still rising, although the central bank has repeatedly raised rates in 2021.
It’s probably only a matter of time before the card house collapses. But a recent study by Harvard University’s Gabriel Chodoro-Rich and colleagues explains that what may appear to be a housing bubble may actually be the result of a fundamental economic change. The study shows that the reasons for the rise in house prices in the United States during the early 2000s to mid-2000s were mainly due to factors such as urban renaissance, growing preference for urban living and wage premiums for urban educated workers. By 2019, real American home prices are back to the top of their pre-financial crisis, further proof that mania was probably not so crazy in the mid-2000s.
Fundamental forces can explain why home prices are so high today — and why they can afford it. Three of them differ: the balance-sheet of the strong family; People’s greater desire to spend more on their living arrangements; And the severity of supply constraints.
Take the householders first. Unlike some of the previous housing booms, the prices of affluent people with stable jobs have gone up. The average credit score for a government-backed mortgage in the United States is about 750-by far the standard for most people, and much higher than before the financial crisis. In the eurozone, banks have significantly tightened credit standards for mortgages by 2020 (although they have since reversed it somewhat). For many, getting a mortgage is difficult, not easy.
People are also less vulnerable to rising interest rates — and thus less likely to be predicted, which often leads to fire-selling and pulling up prices আপনি you might think. This is partly because the rate is rising from a low base. In the US, mortgage-debt-service payments account for about 3.7% of disposable income, the lowest number on record. But it is also because other countries are following the US fixed-rate-mortgage path, which protects people against rising short-term borrowing costs. Long-term fixed products are twice as popular in Germany as they were a decade ago Almost all new mortgages in the UK are fixed-rate, five-year deals are now more common. According to United Kingdom Finance, a trading firm, said about three-quarters of all mortgage borrowers would not be affected by the Bank of England’s recent rate hike in the near term.
The second reason why global home prices are so high is the change in preferences. More people are working from a distance, which means more demand for the home office. Others want big gardens. According to an analysis by the Bank of England, this race for space accounted for almost half of the rise in British home prices during the epidemic. Transactions involving detached homes increased, for example, while transactions for flats decreased. Household-savings rates are still unusually high across the rich world. This has allowed people to invest more in real estate.
The third and most important reason that home prices can be high is the supply of housing. EconomistAnalysis of national statistics and archival records shows that in the years leading up to the epidemic, housing in the rich world, once adjusted for population, fell by half from the mid-1960s (see Chart 2). Housing supplies have become more “volatile”: higher prices at higher prices due to increased demand for homes, and less in additional construction.
In many places the epidemic has pushed the supply further. During the first wave of the Covid-19, some governments forced builders to unload their equipment. Italian housing starts in the second quarter of 2020 are down about 25%; In Britain they have fallen by half. Even where home stay orders were light and zoning laws were relaxed, such as Texas, the pace of surplus demand was so rapid that manufacturers could not hold it down, for example, by a limited number of carpenters.
Lack of materials and labor added limitations. Manufacturers are jumping on the bandwagon with high costs and delays for raw materials such as cement, copper, wood and steel, and the lack of traders is increasing wages. The bumper earnings and improved margins of some house builders suggest that many have been able to increase costs to buyers. DR Horton, America’s largest homebuilder, said the average sale price of his home increased 14% in 2021, contributing to a 78% increase in earnings per share.
Some supply disruptions may be easier now. In October IMF Note that global housing began to grow per capita, although they were still “well below the level of the early 2000s.” But the world has to go a long way. In May 2021, researchers at Freddie Mac, a “government-sponsored enterprise” that subsidizes most of American Mortgage Finance, estimated that the world’s largest economy experienced a deficit of about 3.8 million homes, up from 2.5 million in 2018. Other estimates show a deficit of around 5.5 m. An estimated 345,000 new homes are needed each year to meet demand in England, but builders were not far off target. Unless something changes deeply, expensive property may still be there for a while. 3
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This article was published in the section “Finance and Economics” under the title “House Party”.