Housing | timiacono.com - Part 2

Here’s the data on student loans and home ownership that’s been getting a lot of attention in the last day or so in chart form from its original source at the New York Federal Reserve.

Just in case it isn’t already obvious, many of those youngsters aged 27  to 30 who should be most able to buy property because they went to college and are making more money than they would otherwise are not doing so, in part at least, due to their student loan debt.

What’s really surprising about this is that, over the last few years, the implied home ownership rate of those with student loans has actually fallen below those who have no student loans, a group that, presumably, includes lots of college graduates who got through college with little or no debt along with those who never felt the need for higher education.

Of course, the bigger picture here is that overall home ownership amongst the younger set has fallen precipitously since the financial crisis, dropping by nearly a third, from over 30 percent to just over 20 percent.

Late last week, I chatted with Cory Fleck of the Korelin Economics Report and, instead of the usual subject of precious metals, we talked about a few unrelated topics that have a lot in common with each other, namely, the remarkable rise in Canada home prices over the years that has been accompanied by surging personal debt and financial literacy around the world.

The .mp3 file is again available here at the blog – just click on the image to the right – or you can go directly to this page over at KER.

It really has been a remarkable transformation for our neighbors to the north as property buying from overseas, a banking system that is fundamentally different from the one we have in the U.S., and an extended boom in the natural resource sector have combined to help keep home prices aloft. When factoring in an increasing appetite for personal debt, this has resulted in what seems to be an unstoppable housing market, though it’s important to remember that nothing keeps going up forever.

The chart below from this earlier item tells the story better than words can.

We also talk about a similarly disturbing trend, this one on financial literacy around the world from this earlier item and we both lamented the fact that financial literacy data for Canada was not available so that it might be viewed in context with the charts above.

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According to stories like Too many condos? Canada’s housing growth ‘sustainable’: BMO along with Bubble? What bubble? Toronto condo sales booming once again, both at the Globe & Mail, Canada’s housing market is not a bubble waiting to pop.

But you’d think that something’s got to give at some point after looking at the chart below from this item at the Economist as there has been no real let up in the amount of household debt our neighbors to the north have been willing to take on.

This is a relatively new phenomenon as, based on a cursory review of charts available on the subject, Canada has trailed us spendthrift Americans by a fairly wide margin indebtedness-wise going back at least 25 years.

How this ends up is anyone’s guess, but you’d think that both of those red curves above will, someday, see a major correction that will not be pleasant.

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U.K. Housing … In the News

The Organization for Economic Cooperation and Development ratcheted down its expectations for global economic growth and, in the process, warned that the U.K. housing market may be spiraling out of control. While many policymakers in the West would no doubt give themselves a pat on the back for the latter (e.g., George Osborne below), it seems the English people think differently based on the graphic from this story at the Telegraph.

The Government and Bank of England must act to curb mortgage lending or the recent surge in demand could see house prices spiral out of control, the Organisation for Economic Co-operation and Development has warned.

While the OECD’s latest forecasts showed Britain will be the fastest growing major economy in 2014, the Paris-based think-tank said if measures were not taken to further “restrain housing demand”, such as cutting back the Government’s Help to Buy scheme or forcing borrowers raise higher deposits, the market could quickly overheat.

The OECD said on Tuesday that it expects Britain to grow by 3.2pc in 2014, up significantly from its forecast of 2.4pc last November.

However, it warned that “vibrant housing demand” – helped by schemes such as Help to Buy, which provides Government guarantees for high loan-to-value mortgages – could quickly inflate a house price bubble.

Also see BOE Tools to Tame U.K. Homes Market May Not Work, OECD Says at Bloomberg today and House prices are as big a challenge as inflation in the Seventies and Eighties that appeared at the Telegraph today as well for the many reasons why the U.K. economic recovery is much more exciting (and dangerous) than it appears to the casual observer.

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