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pyewackitt

Oecd: Economics Department

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http://www.olis.oecd.org/olis/2006doc.nsf/.../ECO-WKP(2006)3

Amazing paper!

"Recent House Price Developments: The Role of Fundamentals

In the vast majority of OECD economies, house prices in real terms have been

moving up strongly since the mid-1990s. Because of the important role housing

wealth has been playing during the current upswing, this paper will look more

closely at what is underlying these developments for 18 OECD countries over the

period from 1970 to the present, with a view to shedding some light on whether

or not prices are in line with fundamentals. "

Please Pin!

A must read for all HPC community members!

For those who say this has potential to be the worst crash/recession ever on record - there is now a very scary piece of evidence.

TBH I'm kind of frightened by what all this HPI could perhaps lead to when compounded accross so many OECD countries.....

Edited by pyewackitt

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http://www.olis.oecd.org/olis/2006doc.nsf/.../ECO-WKP(2006)3

Amazing paper!

"Recent House Price Developments: The Role of Fundamentals

In the vast majority of OECD economies, house prices in real terms have been

moving up strongly since the mid-1990s. Because of the important role housing

wealth has been playing during the current upswing, this paper will look more

closely at what is underlying these developments for 18 OECD countries over the

period from 1970 to the present, with a view to shedding some light on whether

or not prices are in line with fundamentals. "

Please Pin!

A must read for all HPC community members!

Good find!!!

Only had a quick peruse but it looks interesting.

Well Done!!

TB

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Some salient points:

From pg 9:

7. Of the 37 large upturn phases between 1970 and the mid-1990s, 24 ended in downturns in which

anywhere from one third to well over 100% of the previous gains in real terms were wiped out. This in turn

had negative implications for activity, particularly consumption.

From pg 10:

10. The literature reviewed for this study was confined to recent research detailed in Table 3. It

suggests that prices are broadly in line with what were identified as their main determinants in Denmark,

Finland, France, the United States and Norway. The findings are mixed for the Netherlands. However, they

uniformly point to overvaluation in the United Kingdom, Ireland and Spain.

From pg 27-28:

22. Other factors, however, may just raise the price of housing. Buy-to-let markets, which have

grown substantially over the past several years in the countries for which data are available (United States,

United Kingdom, Australia and Ireland), are one example. Lower interest rates have increased the return

on rental property for investors, enhancing the attractiveness of, and demand for, housing as an investment.

Fiscal incentives in some countries have also played a role by providing favourable conditions for those

choosing to invest in housing. These markets are, however, dominated by small, first-time investors and

their effect on the housing market is not well understood. See for example Scanlon and Whitehead (2005)

• In the United Kingdom, buy-to-let mortgages have grown substantially since they were

introduced in the late 1990s, from about 3% of total mortgage lending in 1999 to around 7% in

2004. The levelling-off in this ratio since mid-2004 has coincided with slowing house price

appreciation.

24. While other housing-market specific factors have had an influence, interest rate developments are

likely to play a key role. If these rates were to rise sharply over the coming period – a possibility that is

currently treated as a risk in the OECD’s projections – house prices would come under downward

pressure.17 In that event, the shape and duration of any subsequent downward adjustments is likely to be

conditioned by the current low level of inflation. Based on the historical record, declines in real house

prices, when they have followed large run-ups, have taken place more slowly (quickly) if increases in the

overall price level are small (large). This is illustrated by the negative cross-country correlation observed

between the level of inflation and the duration of the house-price-contraction phases, suggesting that it can

be quite protracted at very low inflation rates (Figure 7, upper panel).

Emphasis is mine. Overall, quite bearish.

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However, they

uniformly point to overvaluation in the United Kingdom, Ireland and Spain.

Having spent time in all three countries - I would tend to agree with that. The US is more difficult to call, it has localised hotspots.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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