We test whether foreign demand matters for local house prices in the US using an identification
strategy based on the existence of “home bias abroad” in international real estate markets.
Following an extreme political crisis event abroad, a proxy for a strong and exogenous shift in
foreign demand, we show that house prices rise disproportionately more in neighbourhoods with
a high concentration of population originating from the crisis country. This effect is strong,
persistent, and robust to the exclusion of major cities. We also show that areas that were already
expensive in the late 1990s have experienced the strongest foreign demand shocks and the
biggest drop in affordability between 2000 and 2017. Our findings suggest a non-trivial causal
effect of foreign demand shocks on local house prices over the last 20 years, especially in
neighbourhoods that were already rather unaffordable for the median household.
In this paper we provide tools for assessing the house prices and housing valuation. We
develop two approaches: (i) borrowing capacity approach, and (ii) intrinsic value approach.
The borrowing capacity of households, together with their down payment, implies how much
housing they can attain. In the intrinsic value approach, property value is viewed as a
discounted present value of adjusted net rental income. Our approach does not involve a
complex econometric model and only widely available data are used. The proposed
indicators can guide households, financial markets and macroprudential authorities in their
understanding of house prices development. To illustrate the concepts, we analyze the
housing prices in the Czech Republic and assess the degree of market over-and undervaluation.
Ms. Elva Bova, Mr. Robert Dippelsman, Ms. Kara C Rideout, and Ms. Andrea Schaechter
When discussing debt reduction strategies, little attention has been given to the role of governments’ nonfinancial assets. This is in part because data are scarce. Drawing on various data sources, this paper looks at the size, composition, and management of state-owned nonfinancial assets across 32 economies, with particular focus on the advanced G-20 economies. We find that reported nonfinancial assets comprise mostly structures (such as roads and buildings) and,when valued, land. These assets have increased over time, mostly due to higher property and commodity prices, and are, in large part, owned by subnational governments. Many countries have launched reforms with a view to streamlining public administrations, but receipts and savings have been rather small so far. Governments tend to consider relatively small sets of assets to be disposable, though preferences could change in the future. A potential source for future revenues could be greater reliance on user charges, such as road tolls. In most cases, a first step for more effective asset management has to be the expansion and improvement of data compilation.
Mr. Hideaki Hirata, Mr. Ayhan Kose, Mr. Christopher Otrok, and Mr. Marco Terrones
We examine the properties of house price fluctuations across 18 advanced economies over the past 40 years. We ask two specific questions: First, how synchronized are housing cycles across these countries? Second, what are the main shocks driving movements in global house prices? To address these questions, we first estimate the global components in house prices and various macroeconomic and financial variables. We then evaluate the roles played by a variety of global shocks, including shocks to interest rates, monetary policy, productivity, credit, and uncertainty, in explaining house price fluctuations using a wide range of FAVAR models. We find that house prices are synchronized across countries, and the degree of synchronization has increased over time. Global interest rate shocks tend to have a significant negative effect on global house prices whereas global monetary policy shocks per se do not appear to have a sizeable impact. Interestingly, uncertainty shocks seem to be important in explaining fluctuations in global house prices.
Singapore’s economic growth has been heavily dependent on factor accumulation during the past three decades. Attempts to gauge productivity growth in Singapore and other East Asian countries has led to the widely publicized debate on whether the East Asian “miracle” was driven by factor accumulation or productivity growth. According to the most recent study by the authorities, Singapore’s productivity growth was indeed very low until the 1980s, but has improved significantly to a level comparable to the Organization for Economic Co-operation and Development (OECD) average in the 1990s.