January 1, 2017

What’s Behind The Property Fever?

A weekend topic on two papers, the first by Graeme O’Meara at the Economic and Social Review. “Abstract: This study contributes to the ongoing debate over the causes of housing bubbles. The argument that excessively low interest rates were responsible for the rapid increase in house prices over the last decade has received considerable attention in the literature. However, few papers have attempted to quantify the extent of house price overvaluation in countries that have seen housing booms and busts, in addition to quantifying the looseness of monetary policy. For a sample of 10 OECD countries, we estimate fundamental house prices using demand and supply side characteristics of the housing market. This is supplemented with analysis of price to rent ratios and fundamental price to rent ratios.”

“Loose monetary policy is defined as the deviation of the short term interest rate from the rate which the Taylor rule would prescribe. The empirical results suggest that for some countries deviations from the Taylor rule played a role in the surge in house prices and that a monetary policy stance less discretionary and more closely aligned with a Taylor rule could curtail some of the imbalance in the housing market.”

The full PDF is available at the link.

The second is by Dee Woo, the chief economist of Beijing Zhonghua Yuan Financial Institute. Titled:

China’s Insane Housing Market Will Tumble And Crash In 2017


What’s behind the property fever in China?

The financial truth of the destocking of China’s property market.

Use quantitative analysis to predict when the bubbles of China’s housing market will burst.”

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Comment by Ben Jones
2017-01-01 17:32:44

My thanks to the authors for sending this to me.

Comment by Prime_Is_Contained
2017-01-01 21:11:51

As the authors brought it to your attention, it would be awesome if they would also show up here to discuss…

Comment by Ben Jones
2017-01-01 17:53:24

This is what I found on the first author:

Graeme O’Meara

Economist at ComReg Ireland

Previous: Indecon, London Economics Ltd, Publicpolicy.ie

Education: University College Dublin


Comment by Apartment 401
2017-01-01 17:53:40

“Metro Denver home prices appreciated 8 to 12 percent last year, continuing to outstrip the national average, wage gains and the overall rate of inflation for the fifth year in a row.

The average price of a home sold in metro Denver crossed the $400,000 mark in November, while the median price was around $350,000, according to the Denver Metro Association of Realtors.

But developers have added apartments at a healthy clip, and that has provided some relief for renters. Apartment rent increases, running in the double digits in the summer of 2015, slowed to under 2 percent this fall, the smallest gain since 2010.

Looking ahead, a big supply of new apartments and slower population growth should keep rents down, even if developers stay focused on high-end units.”


Comment by sleepless
2017-01-01 21:15:10

Wrong, the HA will tell you the housing prices in Denver have been falling 10% YoY… Just ask him…

Comment by The Enrager
2017-01-01 22:06:24

Data my friend. Stick with the data.

Boulder, CO Housing Prices Crater 7% YoY


Comment by palmetto
2017-01-02 07:12:04

LOL. Well, at least they didn’t puke on the carpet this time.

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Comment by Big Fat Ugly Bubble
2017-01-02 09:36:53

This might come in handy in the future.


Remember, though:

“One thing to think about when washing vomit towels is that if it has chunks, they may get stuck in the washing machine.”

Comment by azdude
2017-01-02 05:24:28

some of my friends here are real debbie downers.

Comment by Ben Jones
2017-01-02 08:34:28

U Need a new shtick.

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Comment by The Enrager
2017-01-02 08:50:22

And get that blinker fluid topped off.

Comment by Ol'Bubba
2017-01-02 10:01:05

That’s outside of your control… kwitcherbellyachin’ about things you can’t control and get on with your life.

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Comment by In Colorado
2017-01-02 08:55:45

The real estate talk has not abated at the lunch table. The coworkers still firmly believe that Denver real estate only goes up. When I remind them of how prices CRASHED locally (30%+ drops in price) in 2008 they dismiss that and insist it was an anomaly.

Many have been serially refinancing as rates came down, and they have been all so smug about how their appraisals have soared into the stratosphere. I remind them that unless they’re planning on retiring in Alabama or some other cheaper locale that those rising prices don’t actually do them any good.

Comment by The Enrager
2017-01-02 09:03:00

The sell in one location and move to another narrative is a false one scripted by writers for the housing biz.

Comment by Blue Skye
2017-01-02 10:16:36

It seems like one that can work in some scenarios, but probably depends a lot on downsizing.

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Comment by Ol'Bubba
2017-01-02 10:36:32

It’s the foundation of the Oil City plan.

Comment by rms
2017-01-02 10:38:33

“Many have been serially refinancing as rates came down…”

Have they also been treating themselves with equity extractions (aka f*cked buyer dividends) for being savvy investors?

Comment by In Colorado
2017-01-02 17:50:19

Not that I know of. Most of them drive sensible cars. One drives a Lexus, but her husband makes $200K at his job (plus the $100K she makes)

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Comment by Apartment 401
2017-01-01 18:09:05

CBS Oprah Winfrey Special Michelle Obama Says Farewell To The White House Full Interview:


Comment by Apartment 401
2017-01-01 18:10:53

Vandalized Hollywood sign briefly reads “HOLLYWeeD”

“No, Los Angeles residents, it wasn’t your hangovers playing tricks on you. The Hollywood sign really did read “HOLLYWeeD” for a few hours on New Year’s Day.

Police were investigating Sunday after a prankster used giant tarps to turn two of the iconic sign’s white Os into Es sometime overnight.

The vandal, dressed in all black, was recorded by security cameras and could face a misdemeanor trespassing charge, said Sgt. Robert Payan.

The person scaled a protective fence surrounding the sign above Griffith Park and then clambered up each giant letter to drape the coverings, Payan said.

The prank may be a nod to California voters’ approval in November of Proposition 64, which legalized the recreational use of marijuana, beginning in 2018.

Hikers and tourists in the hills spent the morning snapping photos of themselves in front of the altered sign before park rangers began removing the tarps.”


Comment by LaughTrack
Comment by In Colorado
2017-01-02 08:58:24

Maybe some of those bums on the 16th street mall will head out to California. The winters are definitely milder there.

Comment by Professor Bear
2017-01-01 20:13:33

“The argument that excessively low interest rates were responsible for the rapid increase in house prices over the last decade has received considerable attention in the literature.”

A decision by the Fed to maintain insanely overvalued housing prices led to a deliberate policy to suppress interest rates to historic excessively low levels. Other developed economy central banks followed suit.

Comment by The Enrager
2017-01-01 21:05:40

Exactly. The Fed led.

Comment by azdude
2017-01-02 04:09:16

If the credit created out of thin air wasn’t there to loan people there would be no housing bubble.

Fear of missing out on free money is a big driver too.

Comment by Blue Skye
2017-01-02 10:20:20

Incorrect. You can have a fire without gasoline. It’s just more dramatic with the gas.

Comment by Neuromance
2017-01-02 12:48:23

“FOMO”: Fear Of Missing Out

Comment by In Colorado
2017-01-02 17:51:48

Sometimes I think people are more afraid of “missing out” than they are of disease and death.

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Comment by rms
2017-01-02 10:40:41

“Other developed economy central banks followed suit.”

Can you imagine the carry-trade if they didn’t?

Comment by Professor Bear
2017-01-01 20:17:01

“Loose monetary policy is defined as the deviation of the short term interest rate from the rate which the Taylor rule would prescribe. The empirical results suggest that for some countries deviations from the Taylor rule played a role in the surge in house prices and that a monetary policy stance less discretionary and more closely aligned with a Taylor rule could curtail some of the imbalance in the housing market.”

Once a central bank is out on that limb, how can they ever drain the liquidity swamp without precipitating a crash?

Comment by Blue Skye
2017-01-01 20:35:16

Consider that they precipitated a crash the moment they started cheap easy credit.

Comment by alphonso bedoya
2017-01-01 20:38:34

Chinese Damas = Chinese middle-class women

Is that correct?

Comment by In Colorado
2017-01-02 08:59:35

Don’t know, don’t care.

Comment by Avg Joe
2017-01-01 21:10:35

Wow, even CBS has caught onto the citizenship-by-investment story:


Comment by palmetto
2017-01-02 07:10:39

Steve Kroft up on his holier-than-thou hind legs. The US has its own similar program, although it doesn’t quite rise to the level of “citizenship”. But for a cool half million or more, you, too can become a legal resident of the US! Just buy yerself a convenience store, liquor store, no-tell motel, Subway franchise, heck, even a bait shack’ll do.

I remember a poster here on the blog, I think it was jess from South Carolina, telling about how Indian folks were buying up little backwater businesses in the Upstate right and left for stupid money, enough for the owners to get their teeth fixed, pay off debt and buy a nice little retirement cottage on a fishing lake. I don’t blame them for selling.

Comment by In Colorado
2017-01-02 09:01:19

My understanding is that a Subway franchise is worth $50K, tops. I knew a woman who owned four of them. She paid something like $25K for each one.

Comment by Ol'Bubba
2017-01-02 10:04:42

Anecdotally, I’ve heard that owning a Subway franchise is akin to buying yourself a minimum wage job.

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Comment by In Colorado
2017-01-02 17:54:34

She almost never worked in them (she was a veterinary student, her mom bought them for her). She said that they hardly made any money, so she eventually sold them.

Comment by 2banana
2017-01-02 08:43:42

In some places - you can “buy” a diplomatic passport.

No searches at any border.

Cannot be arrested.


Massive corruption everywhere…

Comment by absolutebeginner
2017-01-02 09:17:44

‘In some places - you can “buy” a diplomatic passport.’

somebody watched 60 minutes last night

Comment by Prime_Is_Contained
2017-01-02 11:53:32

Where do I buy one of these?

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Comment by In Colorado
2017-01-02 17:55:40

In Dominica, apparently.

Comment by azdude
2017-01-02 04:10:36

A daisy chain of promissory notes that never have to be repaid with real value.

Comment by aNYCdj
2017-01-02 06:35:07

D.C. Homelessness Doubles National Average as Living Costs Soar


Nationally, homelessness has shrunk 12.9 percent over the last seven years.

a story from 1989


Comment by palmetto
2017-01-02 07:27:36

Was it Ray K who got hisself all in a state about Trump’s tweeting the other day? Well, get used to it, it ain’t gonna stop.


The MSM in concert with the CIA has soiled itself to the point of no return. No one with half a brain believes the Russian election hacking meme. Why? Four words:

“Weapons of mass destruction.” Oh, and a couple more: “Yellowcake uranium”.

Comment by Raymond K Hessel
2017-01-02 08:08:01

I don’t care about Trump’s tweeting per se. It enables him to do an end run around the MSM and communicate directly with the people, which is a good thing. My point was that as President-Elect, he needs to reflect the institutional gravity of his office and refrain from obnoxious & unhelpful tweets that make him look churlish.

Comment by Ben Jones
2017-01-02 08:31:47

I’ve been watching about 30 minutes of this each night:



Helps to understand the guy.

Comment by Blue Skye
2017-01-02 10:49:25

It is hard to get a feeling from that how Donald is Hitler incarnate though.

Speaking of energetic lies, I am still in awe of Nychick’s awesome cameo here for just a few days screaming Russia, Russia, and then Poof.

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Comment by Prime_Is_Contained
2017-01-02 11:58:25

Yep. Where is the HBB-specific search engine again? I forget. But it would be interesting to see when she first showed up here.

Comment by drumminj
2017-01-02 17:06:24

Yep. Where is the HBB-specific search engine again? I forget

I was going to say “use the JT Extension — there’s a link in the toolbar menu”, but sadly that search engine seems to have been taken down.

Guess I should remove the menu item, unless someone knows of a new URL, or different search.

Comment by The Enrager
2017-01-02 19:25:58

Just use google.

Comment by jerzdebil
2017-01-02 10:01:37

Its an interesting commentary on the state of our eCONomy and culture that the new president will use a social media/medium company that - as far as I know - doesnt make money and never has but has a yuge market cap based on ethereal estimates, alignments of the stars, goat entrails and whatever else stock market analysts use nowadays to value assets. All the while the corrupt lamestream media continues to make fools of themselves on a daily basis carrying water for their corrupt overlords.

Comment by Raymond K Hessel
2017-01-02 08:24:20

Jim Rickards talking his book, but his scenario is plausible, though 2017 seems more likely than 2018 as the year where the financial system locks up.


Comment by azdude
2017-01-02 09:12:37

He is one of the several people calling year after year for a doom and gloom scenario. He talks a good shtick and someday he will be right.

All these guys have been saying this for years. They keep doubling down every year.

Sometimes you just have to eat some crow.

Comment by 2banana
2017-01-02 09:26:25

He would have been right based on fundamentals.

But the obama ZIRP, cheap money, socializing the loses, bailouts, destruction of contract law, nationalizing large parts of the economy, the taxpayer guarantee of everything, too big to fail, QE to infinity, bubble economics, etc.


obama adding more to the deficit than all other administrationside combined and accounting for inflation.

Comment by Raymond K Hessel
2017-01-02 09:53:08

+1. Ponzi markets and asset bubbles always expand as long as they have new marks and are backed by trillions in created-out-of-thin-air central bank “stimulus.” But the financial reckoning day can only be deferred, not printed away.

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Comment by Blue Skye
2017-01-02 10:55:59

“eat some crow”

That might be appropriate if the problems of a decade ago had been resolved, rather than doubled down upon. There is still a reckoning waiting, and it has grown more, and for longer, than any of us expected was possible.

Unless there is another “China Miracle” somewhere in the wings, you better buckle up.

Comment by rms
2017-01-02 14:29:58

I’m not worried about a financial crisis because I don’t owe anyone any money, I didn’t loan anyone any money, and I live with liberty in a free country.

Comment by redmondjp
2017-01-03 00:20:08

But we don’t live in a truly free country any longer. Our founding fathers wouldn’t even recognize this as America.

If you think we have a free country, try cutting down a tree on your own property, or digging a hole, or a million other things, that you either can’t do at all, or without the blessing of the government.

We may still have freedom of movement, but our property rights have almost been completely stripped.

Comment by 2banana
2017-01-02 09:43:24

We all know how this will end.

2banana’s Law:

Long term Democrat rule + public unions + free shit army = misery, ruin and bankruptcy

Lord help you if you own a house or business there.

Illinois ends 2016 with an $11 billion in unpaid bills
Illinois Policy | December 26, 2016 | Brendan Bakala

Illinois state government has left the people of the Prairie State quite the stocking stuffer this holiday season: an $11 billion bill backlog that is expected to hit $14 billion by summer 2017. However, with money from a June stopgap funding agreement set to run out by the new year, nonprofit service providers and students receiving state grants may view it more as a lump of coal.

Funding for service providers hasn’t been a priority for the General Assembly for quite some time. Service providers wait, on average, nearly a year to be paid. Illinois politicians have been delaying payment to service providers since 2002, valuing increases in government-worker salaries and pensions more than compensating those who aid the most vulnerable Illinoisans. Spending on state-employee pension benefits increased 586 percent from 2000 to 2015, yet funding for human services only increased by10 percent during that time.

The state’s total pension debt has swelled to $130 billion, up 17 percent since 2015.

Illinois’ tax revenues have increased 70% more than inflation over last 3 decades

A lack of revenue is not driving Illinois’ pension problem.

Comment by Ben Jones
2017-01-02 09:49:06

The Syrian Ceasefire Has Shifted the Balance of Power to Assad

“One does not have to spend long in Washington these days to find that, while there are many important people who detest Assad and Vladimir Putin, this feeling is far exceeded by the hatred they feel for the victors of the US presidential election. These divisions are bound to further envenom and shape policy decisions towards the crises and wars exploding in the Middle East.”

Comment by 2banana
2017-01-02 10:02:25

These important people will not be important after January 20th…

Comment by Raymond K Hessel
2017-01-02 09:56:12

Please, Trump, deport Rosie O’Donnell, though you’ll have to contract one of those Ukrainian AN-124 giant transports to ship out her fat azz.


Comment by phony scandals
2017-01-02 10:00:51

Good News: Washington Frozen Out of Syria Peace Plan


As the US mainstream media obsessed last week about Russia’s supposed “hacking” of the US elections and President Obama’s final round of Russia sanctions in response, something very important was taking place under the media radar. As a result of a meeting between foreign ministers of Russia, Iran, and Turkey last month, a ceasefire in Syria has been worked out and is being implemented. So far it appears to be holding, and after nearly six years of horrible warfare the people of Syria are finally facing the possibility of rebuilding their lives.

What is so important about this particular ceasefire? It was planned, agreed to, and implemented without the participation of the United States Government.

So why all the media attention on unproven accusations of Russian hacking and President Obama’s predictable, yet meaningless response? The mainstream media does the bidding of Washington’s interventionists and they are desperate to divert attention from what may prove to be the beginning of the end of Syria’s long nightmare. They don’t want Americans to know that the rest of the world can solve its own problems without the US global policemen in the center of the action. When it is finally understood that we don’t need to be involved for crises to be solved overseas, the neocons will lose. Let’s hope that happens soon!


Comment by Blue Skye
2017-01-02 11:00:29

“Obama’s predictable, yet meaningless response”

I don’t know if it was predictable. Stupidity is always underestimated. It’s only meaningless because the other side isn’t playing the same game.

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