More on the IMF and Housing Bubbles

A little more info on the IMF view of the current global housing situation (see next post). This time from the Taipei Times. Conoisseurs of my arguments please note the point about the immigration demographic factor. This argument (to my knowledge) has been used by Alan Greenspan and Glenn Hubbard (in his case to explain why deflation 'isn't a danger') The importance given to the feed through of immigration for new home demand seems to me to be interesting, in particular for what it suggests might be the case if there were no immigration (eg Japan: house prices mired down at mid-eightees levels). Clearly we need more metrics on this, as well as metrics on lead-lags. My feeling is that in a first period (I've seen references to seven years in the sociological research) immigrant labour is largely poor, and sends a significant part of earnings (again the estimate is one third: the IMF does hold numbers on this) back home. This means these workers effectively should be classified as a partial import, with the practical peculiarity that the labour is exercised in the host country (and of course two thirds of the wages are spent there, a not unimportant detail: maybe the other third could be classified as raw material costs!!). The comes a second period, when the immigrant is more focused on life in the new country, ties with family become weaker, and the money going home slows down to a trickle. It is after this transition that the immigrant truly speaking enters the domestic housing market and in forward studies of housing prices and demand this factor needs to be identified and weighted.

The menace of a housing-price bust hovers over Britain, other European countries and possibly even the US, the IMF warned Thursday. Housing prices, even after inflation, had shot up 70 percent in Britain and even further in the Netherlands and Ireland from trough to peak, IMF chief economist Kenneth Rogoff said. "In the United States, where prices are up by 27 percent in excess of inflation since the last trough, the housing price appreciation has been less spectacular," he told a telephone news conference. "But it is still greater than any of the booms we clocked for the United States since 1970," said Rogoff, who was presenting an IMF study on the impact of asset price bubbles. The house price appreciations for all four countries exceeded the IMF statistical definition of a boom, which implied a 40 percent risk of a later bust. "The impact of housing price busts, when they do occur, is much more significant on the real economy, probably double the average impact of an equity price bust," said IMF global economist Jonathan Ostry. "Although equity price busts occur much more frequently, the impact of housing price busts is much more severe," he said. Equity price busts on average occurred every 13 years while housing collapses happened once in 20 years, the IMF study said.Housing price busts on average knocked back gross domestic product -- total economic output -- by 8 percent, it said, compared to 4 percent for stock market collapses. IMF economists hesitated to describe the US housing market as a boom, but they urged the Federal Reserve to monitor it closely. Federal Reserve chairman Alan Greenspan last month played down the risk of a bust. "Clearly, after their very substantial run-up in recent years, home prices could recede," Greenspan told a bankers' convention. "A sharp decline, the consequences of a bursting bubble, however, seems most unlikely."David Robinson, IMF deputy research director, said the scale of the house price increase fell into the IMF statistical definition of a boom but it was too early to declare it a bubble. Immigration had pushed up the US population, and low interest rates had opened housing to more people, stoking demand for housing and suggesting higher prices may be sustainable. "It is something we need to keep our eye very much on in the United States because it is historically high," Robinson said, however. He urged particular caution for regional US housing hot spots. The risk of a housing bust was higher in Britain, given the sharper run-up in prices, IMF analysts said. A house price collapse in one country can have a global impact, the IMF's Rogoff said. "Housing is a significant component of wealth across countries and given that there are linkagaes -- trade, finance, business cycles -- a housing bust in one country will have spillovers to the rest of the world."