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Wild home prices: winners and losers from the pandemic


In Akron, Ohio, home prices have risen 10.1 percent over the past year. The increase in Albany, New York, was 11.7 percent. Albuquerque, New Mexico, saw a similar increase of 11.6 percent.

And these are just US cities that start with the letter A.

“You can throw an arrow at the map and it doesn’t matter where you landed because the housing market there is probably hot,” says Ali Wolf, chief economist at Zonda, a California housing market research firm.

When the coronavirus pandemic first emerged last year, the initial assumption of many politicians was that the economic pain would be shared. This epic event was supposed to be a great equalizer. But with governments across the developed world stepping in to protect incomes in ways that have helped most people with steady jobs, the hardship has fallen disproportionately on resilient, low-income workers and youth. Suddenly unable to eat out or travel, wealthier families used the past year to build up their savings.

Oslofjord, Norway, where the central bank said last week that Oslo saw a net inflow of population for the first time in 20 years in 2020 © Popow / ullstein bild via Getty Images

The total global wealth accumulated by households rose by nearly $28.7 trillion in 2020, according to a report published this week by Credit Suisse, which highlighted the unusual breakup Between this growth and the fortunes of the broader economy.

The wealthiest families channeled their unexpected savings into stocks and cryptocurrencies, Louis Vuitton bags And the Dutch gentlemen. But most of all, they did Putting money into buying bigger and better homes.

People did not expect this to happen how it happened. “No one has even registered for a few months until there are clear winners and losers,” says James Pomeroy, an economist at HSBC. Now, the sharp rise in home prices presents a “huge challenge – a problem in terms of financial stability but a huge social and economic problem as well”.

Bar chart of the latest annual house price increase (%) showing housing markets ignoring the pandemic

This phenomenon is global. Some of the biggest rises were in the US, where data released this week showed the median price of all types of housing rose 23.6 percent year-on-year in May. Most US homes are now selling above asking price, with more bid accepted in a fraction of the time from listing than it was before the pandemic, according to Daryl Firother, chief economist at Redfin, an online real estate brokerage.

But even in Japan and Italy, where aging populations are limiting demand, price growth has accelerated. With very loose monetary policy limiting borrowing costs, house price inflation is now in the double digits In many advanced economies, from Sweden to South Korea, from Canada to the Netherlands and New Zealand – with the largest increases not in the capitals, but in Suburbs, smaller cities, and rural areas.

norwegian central bank He said last week That Oslo saw a net influx of residents for the first time in 20 years in 2020, as remote workers shift from downtown apartments to more spacious homes on the outskirts of the capital.

In the UK, press coverage of the G7 leaders meeting at the Corniche resort of Carbis Bay Probably A new wave of home searches in the scenic Southwest, where the market is “crazy,” says buying agent Henry Pryor. “One client left London to make a deal in Cornwall and 40 minutes into the drive was told to turn around because it was already sold out,” he adds.

Cornwall, England, where press coverage of the region's G7 leaders meeting inspired a new wave of home searches in the scenic southwest.
Cornwall, England, where the G7 meeting inspired a new wave of home-hunting in the scenic southwest © Jon Super/AP

wide chasm

Strong demand for housing was initially welcomed – and encouraged by governments in the UK, the Netherlands and some Australian states, which introduced tax breaks in an effort to keep the economy moving. Luis de Mello, who leads research on housing at the OECD, argues that, at a time when economic restructuring is taking place, there is a need for an active housing market, because “obstacles to housing mobility become an obstacle to the recovery of our economies.”

But the wild market holds two concerns for policy makers. First, prices can escalate into bubble territory, leaving economies vulnerable to a sudden market correction that could hit family wealth.

“I’m not happy with home prices going up because real estate is the surest indicator, and the most convincing leading indicator of it…it’s a crash,” says Adam Posen, president of the Peterson Institute for International Economics.

A graph showing the home ownership gap in America.  Ownership rate, 2018 data, percentage.  Under 35 to 65 and over figures for all families, for white, Asian, Native American, Hispanic and black ethnic groups.

Second, home ownership can become prohibitively expensive for young people and key workers who were already priced out of many areas prior to the pandemic — solidifying inequality Between generations, those are more or less able to count on parental help.

“The activity we are seeing is mostly people who already have a share in the housing market. They are the ‘owners’, says Neil Hudson, a UK-based housing analyst.

“House prices are rising every year and this gap between haves and have-nots, old and young, is widening,” Pomeroy says, adding that the “real estate grant calculus” has gotten a lot worse over the past year, as young people have suffered work losses and the disruption to education that can inflict Damage to earnings over their lifetime.

When asked this month about the risks of monetary policy fueling the housing bubble, the European Central Bank's Christine Lagarde said the benefits of his decisions
When asked this month about the risks of monetary policy fueling the housing bubble, the European Central Bank’s Christine Lagarde said the benefits of his decisions “largely outweigh the spillover effects” © Francisco Seco/Pool/EPA-EFE/Shutterstock

Both issues are a growing concern for policy makers. The price hike is driven by a real increase in the demand for housing, from space-starved domestic workers. But there are also signs that financial speculation is starting to fuel prices in markets where affordability is already an issue.

“What we often see these days, the winning bidder at many of these home auctions is sometimes not a family. It’s a mailbox in Delaware, an investor who hasn’t seen the house from,” said Robert Kaplan, president of the Dallas Federal Reserve. He has accepted, and he wants the house furnished and will buy it for investment purposes and rent it at this week’s event.

Black stoneThe private equity firm, which has become the world’s largest real estate manager, said this week it will pay $6 billion to acquire Home Partners of America, a buyer and operator of single-family rental properties.

A gallery worker attaches a self-portrait of Rembrandt.  Richer households funnel the savings accumulated during the pandemic into stocks, cryptocurrencies, Louis Vuitton handbags, and Dutch professors.
A gallery worker attaches a self-portrait of Rembrandt. Richer households funnel the savings accumulated during the pandemic into stocks, cryptocurrencies, Louis Vuitton handbags, and Dutch professors © Neil Hall/EPA-EFE

Kaplan said he believes it is time for the US central bank to reconsider its support for the housing market through its own $40 billion in monthly purchases of mortgage-backed securities for agencies, which forms a large part of the $120 billion bond-buying program.

Norway’s central bank hinted last week that it may soon tighten monetary policy in part in order to pressure the pace of unwelcome home price growth, and New Zealand broke with orthodoxy this year by adding a provision to its central bank’s mandate, directing it to take home prices into account when setting monetary policy. .

Christine Lagarde, the head of the European Central Bank, has also been questioned about the issue – which has become a bar for criticism. The European Central Bank’s very loose monetary policyاهل – During a hearing in the European Parliament this week.

Albany, New York, where home prices rose 11.7% in the past year
Albany, New York, where home prices rose 11.7% last year © Philip Scalia / Alamy

In response, Lagarde said there were “no strong indications of a credit-fueled housing bubble in the eurozone as a whole”, but added that there were “vulnerabilities in residential property” in some countries and some cities in particular.

“The disconnect between home prices and broader economic developments during the pandemic risks a price correction,” she said, calling for macroprudential policies – such as national restrictions on mortgage lending – to be “carefully tailored to address country-specific risks.” Asked this month about the risks of monetary policy fueling the housing bubble, Lagarde said the benefits of ECB decisions “largely outweigh the spillovers”.

Protesters carry placards with the words
Demonstrators carry placards reading “rents stop” at a demonstration in Berlin. Tenants took to the streets last month to demand the confiscation of properties owned by commercial investors. © John MacDougall / AFP via Getty Images

Taxing the rich?

While central banks are concerned about financial stability, rising house prices have fueled political debate over the pandemic’s potential impact on economic disparities.

In Berlin, tenants took to the streets last month to demand the confiscation of properties owned by commercial investors, shortly after the German Constitutional Court. Ruled the city’s rent cap illegal.

In the UK, debt charities have called on the government to step in to help resolve £360m of rent arrears accumulated due to the pandemic, after a temporary moratorium on evictions was lifted this month.

In the United States, while the price explosion has been a boon for many homeowners, it has proven devastating to potential low-income buyers and renters.

“Families that have survived the crisis without cash are taking over the limited supply of homes for sale, driving up prices and further excluding less affluent buyers from home ownership,” Report of the Harvard Joint Center for Housing Studies concluded in June. “At the same time, millions of families who have lost their income during the lockdowns are behind on their housing payments and on the brink of eviction or foreclosure.”

Worker Mike Freely removes furniture while being evicted from his home in Galway, Ohio, where home prices have risen 10.1% over the past year
Worker Mike Freely removes furniture while being evicted from his home in Galway, Ohio, where home prices have risen 10.1% over the past year © Stephen Zenner / Getty Images

The situation for renters is also dire, despite some near-term relief from the Biden administration this week with its decision to extend the national moratorium on evictions through the end of July. Nearly 4.2 million people across the country have expressed concern that they will face eviction or foreclosure in the next two months, according to recent data from the US Census Bureau. The Urban Institute, a think-tank, warns that the burden will fall disproportionately on blacks, Native Americans, Latin Americans and other people of color.

However, Buzyn points out, the increase in housing wealth in the past year will help middle-class Americans catch up with those at the top of the distribution — while moving away from the poorest. High home prices are one of the reasons why the majority of Americans are better off today than they were before the coronavirus. “Is this a victory for equality or a victory for inequality? It depends on where you draw the line,” he says.

He says central banks will have to “lean on the wind” with measures such as curbs on risky mortgage lending, if they are to prevent a dangerous housing bubble. But he adds that the cures for inequality lie in fiscal policy. Those who made excess profits through the pandemic must now face a “solidarity tax” to help pay for it.

“If you care about inequality, you have to redistribute directly – there will be none of the machine that will take care of it for you.”

Additional reporting by Martin Arnold in Frankfurt and George Hammond in London



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