Opinion

Edward Hadas

Housing, the ultimate momentum trade

Edward Hadas
Jun 25, 2014 14:47 UTC

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.

Basic economic indicators – GDP growth, employment levels and general price levels – can explain almost none of this variation. The patterns in the American and European economies over the last 13 years have been far more similar than the house price trends.

Concrete variations in the balance of housing supply and demand are more relevant, but more for differences within than between countries. Variations in planning rules and demographic patterns have been nowhere near large enough to explain the sharply different direction of house prices.

Finance is more relevant. The amount that people actually pay for housing is closely related to how much money they can get their hands on. That sum is strongly influenced by such financial factors as monetary policy, lending practices and tax rules. These have moved much more than anything in the real economy. For example, tax changes explain much of the Dutch house price fall.

Bitcoin is a step back not forward

Edward Hadas
Nov 27, 2013 16:00 UTC

The developers of bitcoin are trying to show that money can be successfully privatised. They will fail, because money that is not issued by governments is always doomed to failure. Money is inevitably a tool of the state.

Bitcoin relies on thoroughly contemporary technology. It consists of computer-generated tokens, with sophisticated algorithms guaranteeing the anonymity, transparency and integrity of transactions. However, the monetary philosophy behind this web-based phenomenon can be traced back to one of the oldest theories of money.

Economists have long declared that currencies are essentially a tool to increase the efficiency of barter, which they consider the foundation of all organised economic activity. On this view, money is a convenient instrument used by individuals to get things done. It is not inherently part of the apparatus of government.

Has quantitative easing worked?

Edward Hadas
Sep 4, 2013 15:05 UTC

It is nearly five years since the U.S. Federal Reserve slid into quantitative easing, the deployment of artificially created money into the bond market. QE and a prolonged period of near-zero interest rates have been the highlights of post-crisis monetary policy. That era is far from over, but it has lasted long enough for a preliminary judgment of monetary policy – especially as the Fed says it is now preparing to “taper” its bond purchases. My verdict: QE could have been worse, and it should have been better.

We know that policymakers might have done a worse job, because that is what they did in 1929, the last time a cross-border credit boom ended in a cross-border credit bust. Today’s central bankers have done better than their professional ancestors. In the 1930s, central bankers in many countries presided over debilitating deflation, and failed to prevent banking crises. This time, prices have neither collapsed nor exploded, and Lehman Brothers was the only big financial institution to topple.

While monetary policy helped stabilise economic and financial conditions, government bank rescues, large fiscal deficits and the automatic benefits of welfare states all played more important roles. The central banks’ support of weak institutions, and, in the euro zone, of weak governments was more important than their monetary policy.

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