Category: Housing

An anecdote on the German housing bubble

An anecdote on the German housing bubble

I don’t know if there is a German housing bubble or even whether there will be one. I do know that we hear a lot about it in the press – the result of zero, even negative, interest rates. So let me give you a little anecdote from my trip to Germany last week.

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Some incomplete comments on the current US economic environment

Some incomplete comments on the current US economic environment

This is going to be a quick hit post to get some thoughts down on paper because a few threads are coalescing for me that I want to give some coherence to. The essence of the threads revolves around the tension at the Fed between normalizing policy and the ability of the economy to withstand it. My view has been upbeat about the US economy – and that’s been without a trace of recession worry for the last several months. But there are some negative factors coming together that give me pause. And it begins with housing.

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The unwinding of the carry trade of the British pound sterling

The unwinding of the carry trade of the British pound sterling

Between the first quarter of 2013 and the end of 2015, London property prices rose rapidly, the exchange rate appreciated, and the current account deficit widened. This column argues that the rise of the pound was in fact a financial bubble, riding on a property price-exchange rate carry trade.This unsustainable bubble was deflated by Brexit.

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Central banks, interest rates, house prices and resource allocation

Central banks, interest rates, house prices and resource allocation

A couple of weeks ago I told you about two properties in London that I was familiar with as background for my post on house price inflation in the UK. What was clear from those two examples and dozens of others I found is that rental yields are extremely low in London, such that rents do not cover mortgage costs […]

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Jumbos still cheaper than conforming mortgages

Jumbos still cheaper than conforming mortgages

For years mortgage rates on “jumbo” loans have been higher than for traditional (conforming) mortgages. Since jumbo loans were larger than the upper limit permitted to be packaged and sold to Fannie and Freddie, banks would typically charge a premium for “illiquidity” on these products. But starting last year conforming mortgages became more expensive for borrowers than jumbo loans.

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Chart of the day: US house prices are up 12% in ten years

Chart of the day: US house prices are up 12% in ten years

According to S&P’s Case-Shiler House Price Index, house prices are up on average 12% since 2003. The chart of the path of house prices during that time is below via the New York Times.

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Developed economy house price-to-rent ratios from Canada to Japan

Developed economy house price-to-rent ratios from Canada to Japan

Drawing on research by the IMF’s Hites Ahir and Prakash Loungani, the chart compares the house-price-to-rent ratio compared with the historical average. This is a standard measure of valuation. Clearly by such a metric, the recovery in the housing market has been uneven. Canada has the dubious honor of having the most over-valued houses, or where it makes the most sense to rent. The current ratio is about 85% above the average.

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Four key trends developing as a result of the rise in US mortgage rates

Four key trends developing as a result of the rise in US mortgage rates

The recent increase in long-term rates is causing major changes in the mortgage markets. Here are some key trends

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Household formation and affordability are headwinds in the US housing market

Household formation and affordability are headwinds in the US housing market

While the US housing market remains relatively robust, it is likely to face a couple of headwinds going forward. One is the lower affordability index. The other is the recent slowdown in net household formation.

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Financial obligations rising for renters, falling for homeowners

Financial obligations rising for renters, falling for homeowners

With wages stagnant, the proportion of income going into rent is on the rise. While homeowners have been able to reduce their monthly payments to the lowest level in decades via mortgage refinancing and cutting back on credit card usage, the financial obligations ratio for renters has been on the rise.

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Gauging the trajectory of the US housing market

Gauging the trajectory of the US housing market

One could argue that home-buyers are ignoring higher rates, but that doesn’t seem likely. Is this spike driven by capitulating buyers who had been waiting on the sidelines for mortgage rates to drop? That strategy had certainly worked in the past and buyers are realizing that this time it’s different. One reason to think that the jump in existing home sales is transient is the decline we’ve seen in new home sales – which most are attributing to higher rates. The divergence shown below is unlikely to be sustainable.

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Source: John Carney, CNBC

This chart on housing is a big deal

This is crazy. John Carney tells us that not only are homes now growing increasingly less affordable, but the psychology of the US housing market is changing to one of the fear of being priced out. Frankly, I can’t believe we are here again, but we are.

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