A weekend topic starting with two reports from ERR. “Estonian construction volumes exceeded pre-crisis levels in the previous quarter with the production value of construction enterprises in Estonia and abroad increasing 15 percent year-on-year. Developers say that as long as demand keeps up, apartments and other buildings will continue to be constructed. LHV private finance department head Kätlin Vatsel said purchasing power is key. ‘If we compare purchasing power with the previous crisis, it is more than double, meaning that a client earning the average wage can buy more square meters.’”
“The home loans business is booming in Estonia, with the average loan sum now exceeding €100,000. However, rapid growth of the loan volume and maximum loan burden of low-income households is worrying the Bank of Estonia. The loan sums of borrowers in the lowest quintile by income have grown the most. The Bank of Estonia is worried to see a lot of loans granted to low-income household where the monthly payment is close to its 50 percent of monthly income cap.”
“‘We have seen the relative importance of loans where the monthly payment is closer to the 50 percent of income ceiling grow in the last three quarters. Volumes have grown faster in the case of lower-income households. And as concerns smaller banks,’ Gaili Grüning, economist for the Bank of Estonia, told ERR.”
“The central bank finds that Estonian banks LHV, Coop and Bigbank have more high-risk clients. ‘Credit risk assessment is the most important thing we look for and we are acting responsibly there. While banks are allowed to make exceptions regarding the 50 percent of income cap, we have not made any,’ said Catlin Vatsel, head of private loans at LHV.”
Daily Reckoning Australia. “In May last year, four major high-rise developments in Melbourne were fast-tracked for approval by the ‘Building Victoria’s Recovery Taskforce’. That alone is a strong indication that we’re entering an unprecedented building boom for the second half of this cycle. The timing of the tallest residential buildings opening to the public always and unequivocally gives the timing of the next economic recession.”
“The pattern is easy to understand. The tallest buildings are approved when times are good and easy money is sloshing around. Usually, at the start of the real estate cycle. However, because of the extended construction timeline, they typically open at the end of the cycle, when times are not quite so sunny. High-rise blocks also tend to go up in clusters. It leads to a lot of units hitting the market at one time.”
“It’s one reason why in downturns, you’ll see a capital city’s vacancy rates rise suddenly and disproportionally. Because the ‘tallest’ is a much-publicised event, the pattern above has become known as ‘The Skyscraper Curse’. The theory has been around as long as skyscrapers have been around.”
From Stuff New Zealand. “Economics is sometimes referred to as the dismal science, but economist Shamubeel Eaqub has a different view when it comes to some tools of the trade: ‘There is no science, it’s all made up, right?’ Eaqub says. ‘I mean, it’s whatever works at the time, and it keeps changing.’”
“He is talking about the traditional role of central banks in keeping inflation low by hiking interest rates. It is obviously a hot topic now, because we are facing steep interest rate hikes to combat rising inflation. Fisher Funds head of fixed interest David McLeish says the central bank’s tools aren’t suited for this either, because post-Covid we are dealing with a supply-side inflation shock rather than anything caused by the Reserve Bank.”
“”So it’s already hurting us, this inflation, and then what the central bank then goes and says is your debt servicing cost is now higher as well, we’ll take more money out of your back pocket. That doesn’t fix the problem; that potentially makes it worse. It certainly makes the demand side of the economic equation worse.’”
“Before the 1980s, the economy didn’t have enough capital. Now we have solved that problem, but we have another one in its place: the extra capital investment isn’t going anywhere useful. There has been a glut of mortgage borrowing to fund a mass swap of second-hand houses, but there has been severe underinvestment in technology and other productivity-enhancing tools, not to mention infrastructure.”
“Undoubtedly, governments will be tasked with taking a more active interest in these problems, as they did in Germany and Japan after World War II, when capital was allocated to particular uses and industries. Such government intervention would fly in the face of what is politically acceptable today. It is not that the old prescription was wrong, but there seems to be a good argument that it has had its time.”
From KTVB in Idaho. “Two of the Treasure Valley’s fast-growing cities were ranked among the nation’s top-ranked boomtowns in a report.In the rankings, Meridian was tied for third place while Nampa was ranked second, which city leaders said is an indicator that they’re reaching their goals. While the median home price in Ada County has slightly decreased by 2% in October, a $530,000 home is something few can afford. ‘We really do need to continue to attract good quality businesses that pay high family waged jobs, that’s really our focus,’ said Cameron Arial, the city’s community development director.”