Simply Unaffordable! Global Boom in House Prices Becomes a Dilemma for Central Banks (Throw In China’s Declining Credit Impulse …)

Housing in the USA and across the globe is becoming simply unaffordable.

Surging house prices across much of the globe are emerging as a key test for central banks’ ability to rein in their crisis support.

Withdrawing stimulus too slowly risks inflating real estate further and worsening financial stability concerns in the longer term. Pulling back too hard means unsettling markets and sending property prices lower, threatening the economic recovery from the Covid-19 pandemic.

With memories of the global financial crisis that was triggered by a housing bust still fresh in policy makers minds, how to keep a grip on soaring house prices is a dilemma in the forefront of deliberations as recovering growth sees some central banks discuss slowing asset purchases and even raising interest rates.

Federal Reserve officials who favor tapering their bond buying program have cited rising house prices as one reason to do so. In particular, they are looking hard at the Fed’s purchases of mortgage backed securities, which some worry are stoking housing demand in an already hot market.

Here is a chart comparing REAL house price growth the the growth in the combined balance sheets of The Federal Reserve, the ECB and Bank of Japan.

And in the USA, we see that home prices are simply affordable for many (when we compare home price growth to hourly earnings growth). The bigger the gap, the more unaffordable housing becomes.

As folicymakers consider withdrawing monetary stimulus, consider the China’s declining credit impulse which could slow the global economic recovery.

The bottom line? Housing is getting simply unaffordable. Thanks in part to the Fed’s endless monetary stimulus, but also tight local zoning restrictions.

We also have migration trends, away states like California, Illinois and New York to states like Texas, Arizona and Florida.

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