Central banks juggle global housing boom – Press Telegram
Soaring house prices around the world have become an important test of the ability of central banks to hold back relief in the event of a crisis.
If the stimulus is withdrawn too late, there is a risk that real estate will continue to swell and financial stability concerns will worsen in the long run. A sharp decline means destabilizing the market and driving down property prices, threatening the economic recovery after the Covid-19 pandemic.
Memories of the global financial crisis caused by the housing bubble are still fresh in the minds of policymakers, and the way to capture rising house prices is how some central banks buy assets as growth picks up. This is a dilemma at the forefront of deliberations as we discuss the deceleration of. Even by raising interest rates.
The Federal Reserve Board of Governors, which supports cutting bond buying programs, cites rising house prices as one of the reasons for the move. In particular, the Fed is enthusiastic about buying mortgage-backed securities and some fear it may stimulate housing demand in an already booming market.
The central banks of New Zealand, South Korea and Canada will meet next week to set policies, and whenever house prices soar, regular workers will be forced to do something about their housing. remains affordable. I go.
According to the Bloomberg Economics Global Bubble Ranking, New Zealand policymakers are battling the world’s most dynamic real estate market. Central banks meeting on Wednesday were given another tool to tackle the problem, indicating that the official forecast for cash rates begins to rise in late 2022.
The Central Bank of Canada was one of the first banks to switch from developed countries to less expanding policies amid criticism of its role in harassing house prices, and Wednesday’s policy development will be the next step. . Should shrink.
The Bank of Korea warned last month that real estate was “significantly overvalued” and that household debt repayment burden was increasing. However, at a political meeting in Seoul on Thursday, worsening virus outbreaks could be a more pressing concern.
In the biggest strategic overhaul since the euro’s inception, the European Central Bank will raise its inflation target this month, in favor of real estate pressure, and authorities will begin to consider the cost of owning a home. in addition to inflation.
The Bank of England expressed concern about the UK property market last month. The Norges Bank is another authority which has indicated it is concerned about the impact of ultra-low interest rates on the housing market and the risk of building up financial imbalances.
The Bank for International Settlements will use its annual report released last month to increase vulnerabilities in the sector in the event of a pandemic where house prices rise more sharply than fundamentals suggest and borrowing costs rise. Warned.
Eliminating the pandemic era should be step-by-step support for most central banks, but according to Kazuo Mama, who was in charge of monetary policy in banks, how to do it without harming loan holders mortgage. Will be an important issue. Japanese.
âMonetary policy is a boring tool,â said Mama, an economist at the Mizuho Research Institute. “When used for specific purposes, such as reducing housing market activity, it can lead to other problems, such as excessive economic recovery.”
However, not taking action carries other risks. According to an analysis by Bloomberg Economics, the housing market has already displayed a 2008-type bubble warning, warning of financial imbalances and worsening inequalities.
New Zealand, Canada and Sweden are ranked among the hottest housing markets in the world based on key metrics used in Bloomberg’s Economic Dashboard, which focuses on member countries of the United Nations. economic cooperation and development. The UK and US are also near the top of the risk rankings.
Central banks may seek alternatives to raising interest rates, such as changing loan-to-value limits and weighting mortgage risk, as many economies are still struggling to slow viruses and the growth of markets. ready. .. This is called macroprudential policy.
However, other dynamics such as insufficient supply and government taxation are also important variables for housing, and such measures are not guaranteed to be successful. And while unprecedented low-cost money emanates from central banks, such measures can be difficult to keep prices low.
“The best approach is to prevent further expansion of the central bank’s balance sheet,” said Gunther Schnabl of the University of Leipzig, an expert on the international monetary system. “Second, interest rates can be raised very slowly and diligently over a long period of time.”
Another possibility is that house prices are reaching natural highs. For example, UK house prices fell for the first time in five months in June. This indicates that the real estate market may have lost momentum as tax incentives were to end.
But in the United States, where housing demand remains strong despite record highs, there is no sign of this. Pending home sales increased in May in all regions of the United States, with the northeast and west registering the largest increases.
It is not easy for central banks to survive the housing boom, but it may not be too late to avoid the next crisis. Demand from homeowners and speculative buying remains a powerful engine of growth. Banks show no sign of loose lending ahead of the global financial crisis, according to James Pomeroy, global economist at HSBC Holdings.
âIf house prices rise due to supply-to-demand shifts caused by pandemics as telecommuting increases and people want more space, it can cause the same crisis as the previous housing boom. This may not be the case, âsays Pomeroy. “Problems can arise even further and young people can be more expensive than the real estate ladder.”
Alicia GarcÃa Erero, chief economist for the Asia-Pacific region of Natixis, who has worked for the ECB and the International Monetary Fund, said financial authorities in large household economies need to be especially careful as they recover from crisis. Declared.
“Like other asset prices, house prices will continue to inflate as long as there is sufficient global liquidity,” she said. “But it has a much more generalized impact on households, so it has a much more serious impact than other asset prices.”
Central banks juggle global housing boom – Press Telegram Central banks juggle global housing boom – Press Telegram