Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Compared to other assets, houses are tough to sell at short notice (unless you’re willing to offer a huge discount), they require constant maintenance to avoid losing value, and they’re extremely exposed to their local economy. Yet many people put the vast majority of their savings into the equity of a single home.

Tax policy, differences between the quality of what you can rent and what you can buy, and the desire to hedge against the risk of rent increases all help justify this seemingly perplexing financial decision. But simple ignorance of the risks must also be a major factor.

We were reminded of this by a recent conversation with Jed Kolko, the chief economist of Indeed and an expert on housing. He pointed out that house prices in much of the oil-producing regions of Texas and Oklahoma have yet to recover from the bust in the mid-1980s.

Continue reading: Recalling the OK/TX housing bust of the mid-1980s

Could immigration controls be the solution to New Zealand’s frothy housing market?

Here’s an interesting thought from Grant Spencer, the Deputy Governor in charge of financial stability at the Reserve Bank of New Zealand:

While boosting the capacity for development and housing supply is paramount, it is also important to explore policies that will keep the demand for housing more in line with supply capacity…We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last 3 years has generated an unprecedented increase in the population and a significant boost to housing demand…There may be merit in reviewing whether migration policy is securing the number and composition of skills intended. While any adjustments would operate at the margin, they could over time help to moderate the housing market imbalance.

Continue reading: Could immigration controls be the solution to New Zealand’s frothy housing market?

Here's an interesting thought from Grant Spencer, the Deputy Governor in charge of financial stability at the Reserve Bank of New Zealand:

While boosting the capacity for development and housing supply is paramount, it is also important to explore policies that will keep the demand for housing more in line with supply capacity...We cannot ignore that the 160,000 net inflow of permanent and long-term migrants over the last 3 years has generated an unprecedented increase in the population and a significant boost to housing demand...There may be merit in reviewing whether migration policy is securing the number and composition of skills intended. While any adjustments would operate at the margin, they could over time help to moderate the housing market imbalance.

Continue reading: Could immigration controls be the solution to New Zealand’s frothy housing market?

Stop pretending America’s housing boom had nothing to do with lending standards

Why did Americans (and Spaniards and Irish) borrow so much against housing in the 2000s, only to find themselves stuck with more debt than assets? It sounds like a simple question, but it’s surprisingly difficult for economists to agree on an answer.

The standard approach is to attribute the excesses to changes in the behaviour of lenders, who, for whatever reason, became much more eager to give mortgages to people they previously would have avoided with terms they previously would have considered reckless. (For more on the European cases, see here.)

For example, about a third of all mortgage debt originated in 2005 and 2006 was either subprime or “alt-A”, according to data from Inside Mortgage Finance, compared to the stable 1990-2003 average of about 10 per cent. Subsequent experience tarnished these product segments so badly they effectively disappeared.

Continue reading: Stop pretending America’s housing boom had nothing to do with lending standards

Why did Americans (and Spaniards and Irish) borrow so much against housing in the 2000s, only to find themselves stuck with more debt than assets? It sounds like a simple question, but it's surprisingly difficult for economists to agree on an answer.

The standard approach is to attribute the excesses to changes in the behaviour of lenders, who, for whatever reason, became much more eager to give mortgages to people they previously would have avoided with terms they previously would have considered reckless. (For more on the European cases, see here.)

For example, about a third of all mortgage debt originated in 2005 and 2006 was either subprime or "alt-A", according to data from Inside Mortgage Finance, compared to the stable 1990-2003 average of about 10 per cent. Subsequent experience tarnished these product segments so badly they effectively disappeared.

Continue reading: Stop pretending America’s housing boom had nothing to do with lending standards