Housing markets, wealth and the business cycle

Transcription

1 Housing markets, wealth and the business cycle Nathalie Girouard copyright with the author OECD Economics Department DG ECFIN workshop: Housing and mortgage markets and the EU economy Brussels, 21 November 2005

2 Real house prices increased unusually rapidly in recent years Index, 1995=100, logarithmic scale 400 Ireland U.K. Spain Netherlands Norway Index, 1995=100, logarithmic scale 400 Australia Sweden Finland New Zealand France

3 Index, 1995=100, logarithmic scale 400 Denmark U.S.A. Italy Canada Index, 1995=100, logarithmic scale 400 Switzerland Korea Germany Japan

4 Recent house price gains have been countercyclical Percentage deviation from trend 15 Real house prices (left scale) Output gap (right scale) Per cent of potential output

5 House price increases are more common across countries than before Number of countries

6 From housing prices to economic activity: possible transmission mechanisms Consumption and housing wealth Consumption and borrowing capacity Residential investment and the profitability of construction 6

7 Impact of housing conditions on consumption: empirical evidence Changes in housing wealth have a significant effect on consumption in Australia, Canada, the Netherlands, the United Kingdom and the United States In France, Germany, Italy, Japan and Spain, the housing wealth effect appears to be smaller or insignificant Housing equity withdrawal has increased consumption in Australia, Canada, the Netherlands, the United Kingdom and the United States 7

8 Mortgage market indicators are correlated with the size of the wealth effect Mortgage debt ratios Housing equity withdrawal 0.10 Marginal propensity to consume out of housing wealth 0.10 Marginal propensity to consume out of housing wealth 0.08 Netherlands 0.08 Netherlands 0.06 Australia United Kingdom Canada R2 = Australia United Kingdom Canada United States United States R2 = Spain 0.02 Spain Italy Japan Italy, Japan 0.00 France Germany 0.00 France,Germany Mortgage debt 2002 (in% of GDP) Housing equity withdrawal average level (in % of disposable income) 8

9 Structural factors explaining differences in housing wealth effects Easy access to mortgage financing and to financial products which facilitate equity withdrawal High rate of owner-occupation implying a wider distribution of housing wealth Low housing transaction costs and no capital gains taxes on housing wealth which liquefy housing assets 9

10 Easier access to financing strengthened the wealth effect On consumption sensitivity to changes in real house prices Contemporaneous correlation ( ) Portugal Germany Effect of mortgage market completeness United Kingdom Netherlands Spain Denmark France R2 = On housing equity withdrawal Housing equity withdrawal average level (in % of disposable income) since 1990 Italy Germany Spain United Kingdom Denmark France Netherlands R2 = Italy Synthetic indicator of mortgage market completeness Synthetic indicator of mortgage market completeness 10

11 Other factors facilitating the access to mortgage financing LTV ratios Mortgage terms Legal protection of collateral 11

12 Higher rates of owner-occupation open up the housing wealth channel Per cent Share of owner-occupied housing Germany Denmark Netherlands France Austria Finland Japan Sweden Portugal New Zealand Canada United States United Kingdom Australia Luxembourg Belgium Ireland Norway Italy Greece Spain 12

13 Lower transaction costs make housing assets more liquid Housing transaction costs Transaction costs for sales of medium sized houses Per cent of total price 25 Stamp duties and Value Added Tax 20 Real estate agents Other costs (legal costs, insurance, etc.) Belgium Denmark France Germany Netherlands Norway United States 13

14 House prices influence residential construction activity Change in housing investment (percentage points of GDP) 8 6 IRE JPN CAN USA SWE ITA KOR DEU CHE GBR FIN AUS ESP DNK NZL FRA NLD NOR Change in Q ratio 14

15 Structural determinants of house price variability Regional differences in price to rent ratio Index, 1995 = 100 United States United States 180 California Florida Mid-Atlantic Michigan New England Texas Source: Office of Federal Housing Oversight for house prices and Bureau of Labor statistics for rents. 15