Housing Markets: Balancing Risks and Rewards

Transcription

1 Housing Markets: Balancing Risks and Rewards October 14, 2015 Hites Ahir and Prakash Loungani International Monetary Fund Presentation to the International Housing Association VIEWS EXPRESSED ARE THOSE OF THE PRESENTERS AND SHOULD NOT BE ASCRIBED TO THE IMF.

2 Global House Price Index

3 House Prices Around the World

4 Credit Growth Around the World

5 House price to income ratio

6 House price to rent ratio

7 Australia: latest IMF assessment House prices: moderately stronger than consistent with current economic fundamentals Sydney and Melbourne have seen strong house price increases, including in the investor segment. A sharp downturn in the housing market in these cities could be expected to have real sector spillovers, pointing to the need for targeted measures including investor lending-to reduce the risks related to a housing downturn. Housing construction: Low construction activity in Sydney (NSW) in the 2000s have contributed to rapid house price increases in Sydney recently. Housing supply does seem to have grown significantly slower than demand, reducing (but not eliminating) concerns about overvaluation.

8 Belgium: latest IMF assessment House price: ( ) current house prices are closer to their equilibrium than simple historical ratios would suggest and that given the moderate overvaluation, a gradual and limited adjustment seems a plausible scenario. ( ) Given that historical house price changes have had moderate macroeconomic effects with the exception of residential investment the repercussions of a gradual decline seem manageable. (February 2015) Housing construction: The Belgian housing market has not witnessed the kind of construction boom that led to excess supplies in other European countries, such as Spain and Ireland. Requests for building permits as well as building starts have remained generally constant (February 2015)

9 Canada: latest IMF assessment House prices and household debt: Canada s economy raises some concerns in the wake of substantially lower oil prices. The economy s two main domestic vulnerable areas are its overheated housing markets (house prices have risen more than 60% nationwide since 2000) and high household debt (reaching over 150% of disposable income one of the highest among member countries of the OECD). Affordability: Major metro areas have led the run-up in prices, including Toronto, Calgary, and Vancouver the latter recently ranked second in terms of the lowest affordability globally after Hong Kong.

10 House prices in Canada (as of January 2015)

11 Canada: latest IMF assessment Credit: A possible sign of leakage involves the expanding role of uninsured mortgages. These loans are not subject to the same regulatory tightening. These now comprise the bulk of mortgage originations and help fuel housing demand. For example, house price increases concentrated in single family homes in fast-growing real estate markets seem tied to uninsured mortgages. If financial risks start rising again, policymakers may need to take further action to tighten rules on these loans. Supply constraints. Regionally, Calgary and Toronto recorded the fastest price gains followed by Vancouver, while Montreal and Ottawa registered near zero growth over the last four quarters. Housing starts though appear to have settled down close to their 2013 average and below 2012 levels. Home sales have not been particularly strong suggesting that price increases may be due to supply constraints rather than demand factors.

12 Canada: Insured and Uninsured Mortgage Loans

13 France: latest IMF assessment House price: Real estate prices have been on a declining trend, but remain about percent overvalued by some metrics, and price pressures could reemerge over the medium term. However, the impact of future price adjustments is mitigated by relatively stringent lending standards and manageable levels of household debt. (July 2015) Housing construction: More could be done to alleviate structural rigidities in the housing market. Residential construction has fallen by 14 percent, and real house prices by 11 percent, since the peak in While this decline is partly cyclical, a succession of laws introducing regulatory and tax changes may also have contributed. (July 2015)

14 Germany: latest IMF assessment House price: After years of stagnation, nominal housing prices at the aggregate level have grown at an annual pace of 3 4 percent for the past five years only marginally faster than the growth in disposable income. In spite of falling lending rates, mortgage loan growth remains modest and lending standards appear stable. Thus, there are no signs of overheating yet. (July 2015) Housing construction: In a broader European perspective, the volume of new construction in Germany still appears relatively modest. The strength of markets in the center of the largest cities, where supply restrictions are the tightest, also points to an important role of housing supply factors. (July 2014)

15 Mexico: latest IMF assessment Construction sector: has been a key drag on growth over the last two years. Since entering a downturn in mid-2012, construction activity (which accounts for 7 percent of GDP) has contracted by 6½ percent. Construction sector: The decline was most pronounced in lowincome housing construction. Construction employment also fell sharply, affecting consumer confidence, and spilling over to the rest of the economy.

16 Mexico:

17 Netherlands: latest IMF assessment House price: The global recession and regulatory tightening have helped deflate housing prices. House prices have declined by 27 percent in real terms since their peak in late 2008 and have shown broad signs of stabilization only in the last few quarters. (December 2014) Housing construction: Zoning regulations have constrained supply and contribute to its low price elasticity. Despite having twice the population density of Italy and Germany, only about 20 percent of the Netherlands territory is built on. In addition, tight zoning and other regulations have held back new developments. (December 2014)

18 Norway: latest IMF assessment House prices: vary considerably across regions (...) most estimates suggest that house prices are significantly overvalued. Macroprudential Policies: additional measures taken to contain systemic risks from the growth of house prices and household indebtedness, including stricter LTV and loan-toincome or debt service ratio to supplement the affordability test. Housing construction: Restrictions on new real estate construction have slowed the building of new units and raised the cost of housing; these policies are currently under review, and [IMF] staff would welcome new measures that could take some of the pressure off of housing prices by relaxing unneeded supply restrictions.

19 Norway

20 United Kingdom: latest IMF assessment House prices: House price increases in the UK stand out among the OECD economies. Over the past 30 years, real house prices have increased the most in the UK when compared with other OECD economies. Indeed, over this period, annual house price increases have averaged 3 percent in real terms, compared with 1 percent for the OECD as a whole. (July 2014) Housing construction: ( ) rapid price increases reflect the impact of serious supply constraints Residential investment in the UK as a share of GDP is among the lowest across the OECD economies. The sluggish response of residential investment to a strong demand for housing is attributed to supply-side constraints restrictive planning regulations, in combination with inadequate incentives for local authorities to grant building permits (July 2014)

21 United States: latest IMF assessment Housing Finance: While a number of important steps have been taken to address the structural weaknesses exposed by the crisis in mortgage markets, comprehensive housing finance reform remains the largest piece of unfinished business. In particular, it is not clear when Fannie Mae and Freddie Mac will exit conservatorship and what an end point for a reformed housing finance system will look like. Housing affordability and homeownership rates in the U.S. are broadly in line with other OECD countries, but are achieved at a significantly higher cost in terms of implicit public subsidies. Social goals often get conflated with prudential goals; and the subsidized pricing of risks leads to distorted incentives and increased risk taking. Availability of the 30-year fixed-rate mortgage loan with no prepayment penalty is often championed as a social goal, but there is little economic rationale for such a goal.

22 Thank you