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from Counterparties:

Halfway homes?

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The American housing market is looking better. That’s not entirely surprising, given that there was nowhere to go but up after the big bust of 2008. Some indicators — the number of housing starts, for instance — look quite healthy. But a team of researchers from the New York Fed, looking over a treasure trove of new data on the benefits and drawbacks of homeownership, have concluded that the divide between owners and renters is still one of the biggest fault lines in America.

Over the last nine years, the percentage of Americans who own their own homes, typically a marker of middle-class respectability, has fallen from 69 to 65 percent. Moreover, sales of both new and existing homes were about 5 percent lower over the first half of 2014 than over the first half of 2013. There is vigorous debate over why this is the case. The Fed researchers write that the main reasons preventing renters from becoming owners “are weak balance sheets (low savings or high debt), low income, and lack of access to credit.” Lack of desire to own a home doesn’t really factor into it. Nick Timiraos concurs, “The good news from the standpoint of the real-estate industry is that there’s less evidence of a structural shift in Americans’ preference for owning homes.”

The people who can afford to buy their homes these days, Jonathan J. Miller says, are more likely than ever to be wealthy. Seven properties have already sold for over $50 million in 2014, and while these ultra-pricey transactions are outliers, it’s broadly true that wealthy investors are doing better than ever while “the majority of U.S. homebuyers remain dependent on access to credit. And today's tight lending conditions aren’t expected to ease anytime soon.” Emily Badger points out that the line between owners and renters is becoming more blurred than ever. Neighborhoods that used to shun renters have to get used to a new normal: “Picture low-density, single-family neighborhoods dotted with rentals that look architecturally indistinguishable from the owned homes,” Badger says. This is especially the case in places like Las Vegas, Phoenix, and Florida, which were hit hardest by the housing bust.

So what’s left for the increasing number of renters? One trend that’s been underway for some time is so-called “rental securitization,” in which investment banks and other firms buy rental housing, largely single-family homes, and package them much as they did with mortgages. The New York Times recently reported on how this phenomenon is becoming widespread in lower-income suburbs like Ferguson, the Missouri suburb recently torn apart by protests over the police shooting of an unarmed black teenager. And in cities where single-family houses are rare, Alexis Stephens says, the new trend of “property funds” allows outside investors to put money in the housing stock of once-gritty neighborhoods like New York’s Bedford-Stuyvesant, and reap the profits when prices go up—putting further stress on a neighborhood where “the average monthly apartment rent is up 46 percent over the past five years.” — Jordan Fraade

from Breakingviews:

London real estate at an inflection point

By George Hay

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Most real estate valuers in London think property prices in the UK capital are about to fall. That prediction has been easy to make and easier to get wrong in the last five years. This time, the evidence that global investors’ favourite housing market has peaked is looking credible.

from Expert Zone:

When are house prices a worry?

(Any opinions expressed here are those of the author and not of Thomson Reuters)

As I speak with a relatively recognizable British accent, travelling by taxi in many Asian countries has become something of a trial in recent years. Whenever my nationality is recognized, I am (courteously) asked for my views on the London property market, and where to buy. In a world of low interest rates, property has become increasingly fashionable, and somehow housing advice delivered in a British accent has become highly sought after.

The development of One Hyde Park is seen in LondonProperty prices in London are now over 30 percent above their pre-crisis level. For the rest of the UK, house prices are now back where they were before the onset of the economic crisis (it should be noted that the economy is around 13 percent larger in nominal terms over the same period, so the house price to GDP ratio has fallen for the country as a whole). In the United States, house prices have yet to regain their pre-crash levels, but they are up 20 percent from their lows. Even in the Euro area, not an economy noted for its vibrancy, German property prices are 10 percent higher than they were before the crisis.

from Edward Hadas:

Housing, the ultimate momentum trade

What will happen next in the housing market? The question comes up all the time in many countries, for an obvious reason: house prices jump around too fast for the good of the economy.

The price hyperactivity does not follow a uniform pattern around the world. Look at the indices of average prices for dwellings by nation, adjusted for inflation, compiled by the Bank for International Settlements. Since 2000, the real average price is up by 63 percent in the UK, by 49 percent in Switzerland and by 12 percent in the United States. The average Dutch price declined by 7 percent. In Germany, though, there has been so little house price action that BIS could only find data back to 2003. Since then, the average German price is down by a tiny 1 percent in real terms.

from Breakingviews:

U.S. home affordability on way to lowest in years

By Daniel Indiviglio and Richard Beales

The authors are Reuters Breakingviews columnists. The opinions expressed are their own.

U.S. homes may soon be as unaffordable as they have been in decades. With the Federal Reserve set to raise interest rates, house prices rising and incomes not keeping pace, the dream of home ownership – cheaper after the 2008 downturn – is receding again for many. A new Breakingviews calculator shows that by 2017 homebuyers may have to stretch once again.

from Breakingviews:

Can sterling hit $2? Only with a perfect storm

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own. 

Sterling has touched $1.70 and is on the brink of bursting ranges which have confined it for five years. Could a resurgent pound return to pre-crisis levels of $2?

from Breakingviews:

Blunt instrument is needed for global house bubble

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

House price bubbles thrust economies forward and crush them when they burst. The International Monetary Fund has now raised the prospect of a global housing bubble that could potentially destabilise the world economy. The risk is credible, but the IMF is sadly too coy about the root cause of the problem – ultra-loose U.S. monetary policy.

from Breakingviews:

Review: “House of Debt” diagnosis beats remedies

By Martin Hutchinson

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Atif Mian and Amir Sufi are better at diagnosis than cure. In their book, “House of Debt: How They (and You) Caused the Great Recession, and How We Can Prevent It from Happening Again,” the two professors make a compelling case that excess consumer debt caused the severity of the U.S. Great Recession. Unfortunately their mortgage bailout proposal would worsen future such problems. Another idea, shared value mortgages, might work partially – but tighter monetary policy would work better still.

from Hugo Dixon:

Six solutions for the UK housing crisis

By Hugo Dixon

Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.

Britain’s main economic problem is that the supply of homes isn’t rising nearly as fast as demand. This doesn’t just create the risk of a new housing bubble; young people are finding it increasingly hard to find places to live, especially in crowded London and southeast England. So I make no apologies for returning to the topic after only three weeks.

from Breakingviews:

UK housing bounce obscures a credit-lite recovery

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Strength in the UK housing market is obscuring a credit-lite recovery in the broader economy. It is easy to see why there is concern about a British house price bubble, but the bigger worry should still be the sustainability and breadth of the economic revival.