The Unemployment Picture in 2016

From the International Jobs Report--January 2016

Figure 1 provides a measure of the global unemployment rate based on data for 116 countries, of which 37 countries are classified as ‘advanced’ (i.e. high-income) countries and the remaining 79 as ‘emerging market and developing economies.’ (We refer to the second group using the acronym ‘EMDE’.)



Let’s begin with how the global unemployment picture looked before the IMF’s January 2016 WEO Update. Figure 1 provides a measure of the global unemployment rate based on data for 116 countries, of which 37 countries are classified as ‘advanced’ (i.e. high-income) countries and the remaining 79 as ‘emerging market and developing economies.’ (We refer to the second group using the acronym ‘EMDE’.) Focusing on the recent cycle, global unemployment rate peaked in 6.2 percent in 2009 and has since been returning slowly to its pre-crisis level. Over the coming year, the global unemployment rate is expected to go up slightly.

To understand where this increase is coming from, Figure 2 shows the unemployment rate for the two main groups of countries separately. This reveals that the increase comes from the emerging markets and developing countries (EMDE) group. Moreover, the increase in unemployment among this group occurs because of the expected increase in unemployment among fuelexporting countries (Figure 3).




How will the growth revisions affect the unemployment picture?

Now let’s consider how the revisions to the growth forecasts that the IMF announced in the January 2016 WEO Update could change the unemployment picture. At the global level, the forecast for GDP growth in 2016 was revised down by 0.2 percent, which would in turn increase the global unemployment rate only a little bit above the path projected in Figure 1. However, for some countries the revisions in growth forecasts are larger, as shown in Figure 4 below. The biggest change is in Brazil, followed by Saudi Arabia, South Africa and Russia.

Continue reading here.

Experts Confer on State of China’s Housing Market

The steady increase in China’s house prices at the national level masks tremendous variation at the city level, conference participants stressed in Shenzhen last month.

House prices in China have been on a long upward march over the past decade prompting questions about what the future holds (see Chart 1). At a conference last month in Shenzhen leading analysts of China’s housing markets provided some answers.

Organized by the IMF in cooperation with the Chinese University of Hong Kong, Shenzhen and Princeton University, the conference—International Symposium on Housing and Financial Stability in China—spotlighted new data sets on China’s housing markets, which provide informed views of what might happen next.

The conference was part of a series of conferences organized as part of the Global Housing Watch initiative, which also provides a quarterly update on conditions in housing markets. The latest update, released today, shows how China’s house price changes compare with those around the globe.

Demand-Supply Imbalances

Participants at the Shenzhen conference stressed that the steady increase in China’s house prices (see Chart 1) at the national level masks tremendous variation at the city level. Beijing has “experienced one of the greatest booms ever seen in housing markets,” according to real estate expert Joe Gyourko (University of Pennsylvania), but the situation is different elsewhere. With his co-authors, Gyourko has constructed a residential land price index for 35 large cities in China based on government sales of land to private developers. These data show that prices have increased in inflation-adjusted terms by about 80 percent a year in Beijing over the past decade but by only 10 percent a year in Xian (see Chart 2).

Continue reading here.

Global Housing Watch Quarterly Update

If we aggregate real house prices across countries and look at the big picture, we see that global house prices continue to march slowly upward. This is what we observe in the latest update of the Global House Price Index (Figure 1). The index has continued to edge higher for the past sixteen quarters.




This upward trend in the Global House Price Index is consistent with the pattern we see when we look at real house price growth across countries. Even though the growth rate varies across countries, house prices are rising in many countries (Figure 2).





Moreover, there is also a clear shift in momentum when comparing house prices in 2015 vs. 2009—the peak of the global financial crisis. We can see this by comparing the proportion of countries with either positive or negative real house price growth for both periods (Figure 3). Specifically, the share of countries with positive real house price growth has gone up from 24 percent in 2009 to 75 percent in 2015. And we see the opposite, when we look at the proportion of countries with negative house price growth. Here the share of countries with 3 negative real house price growth has declined from 76 percent in 2009 to 26 percent in 2015. However, it is important to note that global growth has slowed recently, especially in emerging markets. So it will be important to monitor the data in upcoming quarters to determine the impact on the uptrend in global house prices.




Continue reading the report here. 

“Growth is devilishly hard to predict”

Kevin Drum--a political blogger for Mother Jones--asks: "But I wonder who did better at predicting recessions? Goldman Sachs? The CIA? A hedge fund rocket scientist in Connecticut? Whoever it is, it sounds like the IMF might want to look them up."

But as Drum noted in the Economist article, "Despite forecasters’ best efforts, growth is devilishly hard to predict".

Last year, in September, my presentation at the Federal Forecasters Conference summarized my work on the inability or unwillingness of forecasters to predict recessions. I suggested that to get forecasters to predict recessions (even inaccurately) we should have a Stekler Award for Courage in Forecasting. The award would be in honor of noted forecaster Herman Stekler who says that forecasters should predict recessions early and often and that he himself has predicted 9 of the last 5 recessions.

For my recent work on forecast accuracy see the following:

• September 2015: Fail Again? Fail Better? On the Inability to Forecast Recessions

• April 2014: “There will be growth in the spring”: How well do economists predict turning points?

Four Questions About Recent Developments in UK's Housing Market

Global Housing Watch Newsletter: January 2016

Please bear in mind that this is intended to be a summary of views of external analysts and should not be attributed to the IMF.

“12 months of growing crisis”—that’s how the Guardian summarizes the housing market developments of 2015. This could partly explain the recent housing market measures announced by the UK government. However, experts doubt that these measures will have any effect. What follows is an attempt to answer four key questions about these developments:

1. What are the new policies that the UK government announced?
2.  Will house price head north or south?
3.  What can be done?
4. What are the likely implications?

  

1. What are the new policies that the UK government announced?The short answer: a series of measures to ease house prices and boost the housing supply.

 

The long answer: in November, the UK government announced three new policies for the housing market in its joint Spending Review and Autumn Statement. First: a new Help to Buy equity loan scheme for London will give buyers 40 percent of the home value from early 2016, as opposed to 20 percent. Second: help people get on the housing ladder through Help to Buy: Shared Ownership scheme. Third: from April 2016, people purchasing additional properties such as buy to let properties and second homes will pay an extra 3 percent in stamp duty. Moreover, in January, the House of Commons approved additional measures to boost housing construction.


2. Will house prices head north or south?

The short answer: north.

The long answer: “Government initiatives to support home ownership and build new houses will fail to have any real impact in 2016, with UK property prices expected to keep climbing”, according to a recent Financial Times survey. The survey asked 88 economists the following question: What effect are government policies likely to have on the housing supply and demand in 2016? How much will they contribute to likely changes in house prices?

The result of the survey is consistent with other data showing a similar upward trend in house prices. According to another survey, there is a pick-up in both activity and price expectations reflecting a rush to purchase Buy To Let properties ahead of the change in the Stamp Duty in April, according to Simon Rubinsohn at Royal Institution of Chartered Surveyors. Moreover, “The housing market has enjoyed some smooth sailing in the past year, with a steady 6.6% growth in house prices during 2015 (…) If the current speed of house price growth continues into 2016, the value of the average home may soon pass the £300,000 watermark, having reached £250,000 in December 2013”, according to LSL Property Services/Acadata. The latest numbers from Halifax, Knight Frank, and Office for National Statistics also points to an upward trend in house prices.

3. What can be done?

The short answer: it is complicated.

The long answer: on one hand, there seems to be a consensus among the experts that rising house prices is a concern and that there is not enough housing supply. On the other hand, there doesn’t seem to be any consensus on what the best way is to deal with rising house prices and expanding the supply of housing.

For example, experts have different views on how to address the housing supply problem. Martin Wolf of the Financial Times proposes that “The government must slay the sacred cows — the greenbelts around cities being the holiest of all.” In contrast, “Building an extra 100,000 houses a year would make hardly any difference to the upward trajectory of prices,” according to Gordon Gemmill of the University of Warwick. Oliver Jones of Fathom Consulting says: “(…) the problem in the UK is not a shortage of supply, but an excess of demand (…)”. The Economist says: “Building more houses is only part of the remedy for high prices (…) For one thing, Britain is bad at putting houses where they are most needed.” Melanie Baker and Jacob Nell of Morgan Stanley say that “There are so many government policies on housing that it is difficult to be confident about the net impact.”

 The complexity of the housing supply debate can also be seen in the chart above. It comes from Neal Hudson, of Savills, and reveals a bizarre relationship. It says: “This chart has big implications. Everyone goes on about how Britain needs to build 250,000 or so houses each year to keep up with demand. The chart, of course, implies that unless you get housing transactions up, private builders won't get anywhere near that figure (the public sector build very little housing). Now, the big question is: why does this relationship exist? Economists don't really know. However, here is one suggestion (…) Housebuilders, (…) tend to target the price of new-build houses at the upper decile of the prices prevailing in the local property market (ie, at the top 10% of all the houses sold nearby in a given period of time). If that is true, then you would expect there (roughly) to be one house built for every ten sold.”
 

Housing and Systemic Risk

"Single family housing is looking modestly expensive from an affordability perspective, as home prices have generally grown faster than median incomes during the recovery. Similarly, the value of apartment buildings has grown very quickly even compared to the rapid rise in rents in many areas", says Richard Koss (Global Housing Watch Initiative) in his recent presentation to the Risk Management Association.

Housing Market in Malta

"While the default rates on mortgages and household indebtedness have been low, further consideration should be given to precautionary measures, such as loan-to-value (currently at 74 percent for residential and 69 for commercial in 2014) and debt-to-income ratios, given the rapid increase in mortgages, relatively high overall exposure to real estate, and pick up in real estate prices—fueled by a combination of factors, such as tax incentives for first time buyers, increase in rental demand stemming from the international investor program, increased migration, and the ECB’s QE.", says IMF's report on Malta.

Hong Kong Property Prices: Ripe for a Correction?

"The propensity for property price run-ups in Hong Kong SAR is rooted in a fundamental demand-supply imbalance at work for some time (...). Nevertheless, around the rising trend, there have been times when prices have slowed or hit a plateau before accelerating again. Prices have also declined around periods of heightened financial volatility (2008-09 and 2011-12). At present, the market appears to be experiencing the onset of relative calm after having gathered steam over the past 18 months", according to the IMF's latest report on Hong Kong.

The report also notes that "In the recent run-up, despite the well telegraphed increases in U.S. interest rates, households have continued to opt for floating rate mortgages which will reset in the aftermath of the Fed liftoff. Over 80 percent of new mortgages have been priced off HIBOR in recent months, up from close to zero in 2012. A turbulent and faster-than-expected increase in interest rates could therefore sharply slow property price growth if demand softens in response to the higher cost of borrowing. (...) The authorities noted that the property market may lose some momentum with the interest rate upcycle, but the overall impact was hard to predict. Much will also depend on how the demand-supply imbalance evolves."

Housing Market in Ireland

"Housing prices have risen by about 33 percent since their nadir in 2013. Cash purchases have lately accounted for about half of total housing purchases. Nonetheless, the CBI’s announcement in October 2014 of macroprudential measures (in force since February 2015) has been associated with moderating expectations of future price increases, and has thus reduced the speculative demand for housing. Though slower, the rate of housing price appreciation continues, in part reflecting a weak supply response", according to the IMF's new report on Ireland.

On housing market policies,the report says that "New measures in housing seek to boost sluggish supply which is exacerbating imbalances in this market. The confluence of still-subdued construction activity and rising demand has resulted in an acute housing shortage—especially in central Dublin—that has fueled prices and rents and stretched affordability. Mindful of the mounting pressures, the government has launched a policy package comprising measures to both boost supply (including streamlined building codes and rebates to developers for qualifying projects) and stabilize rents (also increasing tenant rights and protections). Staff welcomed the increased focus on the housing market, noting that some of the measures would help reduce building costs and could jump start construction activity, particularly of lower-cost homes where profit margins are tighter. The mission, however, warned that the administrative measures on rents could reduce rates of return on investment properties and thus dissuade construction."

Housing Developments and Macroprudential Measures in Slovak Republic

"Despite a relatively low level of private debt, and (still) high system-wide resilience to potential shocks, fast credit expansion could result in financial imbalances. This paper reviews current credit conditions and household indebtedness, and explores the need for tightening the macroprudential stance. It proposes a set of additional supervisory measures that would build on steps taken by the National Bank of Slovakia (NBS) and guard against adverse impacts on financial stability and the housing market from rapid credit growth. In particular, fast credit growth relative to historical trends suggests that raising the counter-cyclical capital buffer (CCB) might be warranted in the near term. Macroprudential measures also could usefully be supported through fiscal and regulatory policies related to the housing sector" says a IMF paper on Slovak Republic. 

The paper also notes that "While lending to non-financial corporate has declined in the wake of the financial crisis, there has been a continued rapid expansion of bank lending for housing, which increased at an average rate of about 13 percent over the last five years and now represents almost 45 percent of total lending. Banks’ exposure to the residential real estate sector is growing fast, with over 75 percent of household lending allocated to house purchases."

Mortgage market in Poland

"Financial sector supervision has focused on mitigating vulnerabilities. While earlier tightening of prudential regulation has halted new FX lending, the Polish Financial Supervision Authority (KNF) has recently acted to limit risks associated with the still-high outstanding stock of foreign-currency mortgages. Banks with significant foreign-currency exposure have been requested to retain dividends and further boost capital. In staff’s view, these measures, along with case-by-case restructuring of distressed FX-denominated mortgages, should be sufficient to address vulnerabilities in this loan segment. Any wholesale measures, such as a system-wide conversion of FX mortgages into zloty, should thus be avoided. Alongside, the authorities have continued to address vulnerabilities in the small, but weak credit union segment", according to the latest IMF report on Poland.

Effectiveness and Channels of Macroprudential Policies: Lessons from the Euro Area

A new IMF paper develops an analytical framework using bank lending survey data to investigate the effectiveness of macroprudential measures in containing housing booms in the euro area, the channels of transmission of such measures and their interaction with monetary policy. 

The authors findings suggest that macro-prudential instruments targeting the cost of bank capital would be effective in slowing down mortgage credit growth, and given similar channels of transmission, would reinforce the impact of monetary policy tightening. Limits on loan-to-value ratios are also effective in containing housing booms, especially when monetary policy is excessively loose, and can therefore complement macro-prudential instruments affecting the cost of bank capital.