LIBOR, base rate spreads and the UK housing market

2015 ◽  
Vol 8 (1) ◽  
pp. 118-134 ◽  
Author(s):  
Martin Hinch ◽  
Jim Berry ◽  
William McGreal ◽  
Terry Grissom
Keyword(s):  
Time Series ◽  
Interest Rates ◽  
House Prices ◽  
House Price ◽  
Base Rate ◽  
Percentage Change ◽  
Content Type ◽  
Change Models ◽  
The Uk ◽  
The Impact

Purpose – The purpose of this paper is to analyse how London Interbank Offered Rate Index (LIBOR) and the spread between LIBOR and the base rate of interest as set by the Bank of England (BoE) influences the variation in house prices in the UK. Design/methodology/approach – This paper uses monthly data over a long time series, since 1986, to investigate the relationships between house price and LIBOR. Data are drawn from several different sources to include housing, financial and macro-economic variables. The time series is sub-divided into a series of splines based on stages in the economic and property market cycle. Both value-based and percentage change models are developed. Findings – The results show that BoE base/LIBOR margin variable has a strong positive and significant effect on house price; however, the percentage change model infers a weaker and inverse relationship. The spline analysis re-emphasised the significance of the BoE base/LIBOR margin variable. Where variation between base rates and LIBOR is reduced, a significant positive effect can be observed in the average house price; however, where significant variation exists, the BoE base/LIBOR margin has little effect and LIBOR itself becomes a significant driver. Research limitations/implications – The results highlight that the predictive qualities of the BoE base/LIBOR margin, as the contribution of this margin to the explanation of house price, exceeds both the base rate and LIBOR variables individually. Also highlighted is the contribution of unemployment to the explanation of house price. In both the value and percentage change models, unemployment is shown as a negative and highly significant contributor. Originality/value – Previous papers have demonstrated the important linkage between house price and interest rates, the originality in this paper lies in examining the impact of LIBOR and the spreads between LIBOR and base rate as key variables influencing variation in UK house prices.

scholarly journals Making sense of increased synchronization in global house prices

2020 ◽  
Vol 13 (1) ◽  
pp. 5-16
Author(s):  
John V. Duca
Keyword(s):  
Real Estate ◽  
Interest Rates ◽  
House Prices ◽  
House Price ◽  
Substitution Effects ◽  
Content Type ◽  
International Portfolio Diversification ◽  
Gateway Cities ◽  
The Impact ◽  
International House

Purpose The purpose of this paper is to provide perspective on whether and why global metro house prices have become more synchronized, and perspective on the limited implications of this for investing in international real estate. Design/methodology/approach This paper reviews main findings from the literature on house price determination, reviews the emerging literature on global synchronization, and provides graphs to illustrate main points and trends. Findings House prices have become somewhat more synchronized likely reflecting greater correlation in long-term interest rates and macroeconomic cycles related to trends in globalization and international portfolio diversification. Nevertheless, this trend has not been continuous, reflecting that house prices depend on other fundamentals, which are not uniform across areas. Theory and evidence indicate that the more common are fundamentals, the more synchronized are house price cycles and the more substitution effects may matter. Also, real estate markets that are open to immigration and foreign investment have become more sensitive to shifts in the international demand for property by migrants or investors. Research limitations/implications Changes in international house price synchronization stem from variation in two categories of key drivers of house prices. The first are traditional supply and demand fundamentals. The second include international capital flows and immigration. Both sets of factors are sensitive to the economic environment and public policy. Increased synchronization of business cycles, the Euro currency union, and more common monetary policy strategies and tactics have fostered greater correlation of real interest rates across countries, which tend to increase house price synchronization. These effects can be amplified by the tendency for property owners to use extrapolative expectations of future house prices. Practical implications Shifts in prospective returns and the synchronization of international property returns not only on arbitrage of general property price differentials but also on underlying factors driving those differentials. Investors need to be mindful of the risks that metro prices sometimes reflect bubble-builder dynamics that can give rise to over-shooting of house prices. Observing simple correlations and changes in those correlations does not do away with the need for careful analysis of property investment, and if anything, warrant analysis of both how and why one may observe changes in the extent to which international house prices is synchronized. Social implications Despite the rise of globalization and of new technologies, the author has seen substantial divergences in house prices emerge across gateway cities and metros in less vibrant areas within countries. These reflect not only the impact of stronger income and population in more tech, educated and global oriented cities but also changes in the demand for amenities toward more culturally appealing cities, often – but not exclusively in – warmer or coastal areas where the supply elasticity of housing is often limited. Further complicating investment decisions are potential shifts in housing or immigration policy that can notably affect the demand for housing. Originality/value The paper provides practical perspective on why different groups of international cities have seen their house prices become more sychronized. Nevertheless, increased synchronization has occurred within an elite set of major cities, but in an environment house prices have diverged across gateway cities and metros in less vibrant areas within countries. The paper helps investors make sense of some recent patterns and recent prospects for investing in international real estate.

scholarly journals Liquidity, interest rates and house prices in the euro area: a DSGE analysis

2016 ◽  
Vol 9 (1) ◽  
pp. 4-25 ◽  
Author(s):  
Margarita Rubio ◽  
José A. Carrasco-Gallego
Keyword(s):  
Interest Rates ◽  
Monetary Union ◽  
Euro Area ◽  
House Prices ◽  
Housing Prices ◽  
House Price ◽  
Dsge Model ◽  
Content Type ◽  
The Core ◽  
Dynamic Stochastic

Purpose This study aims to build a two-country monetary union dynamic stochastic general equilibrium (DSGE) model with housing to assess how different shocks contributed to the increase in housing prices and credit in the European Economic and Monetary Union. One of the countries is calibrated to represent the core group in the euro area, while the other one corresponds to the periphery. Design/methodology/approach In this paper, the authors explore how a liquidity shock (or a decrease in the interest rate) affects house prices and the real economy through the asset price and the collateral channel. Then, they analyze how a house price shock in the periphery and a technology shock in the core countries are transmitted to both economies. Findings The authors find that a combination of an increase in liquidity in the euro area coming from the common monetary policy, together with asymmetric house price and technology shocks, contributed to an increase in house prices in the euro area and a stronger credit growth in the peripheral economies. Originality/value This paper represents the theoretical counterpart to empirical studies that show, through macroeconometric models, the interrelation between liquidity and other shocks with house prices. Using a DSGE model with housing, the authors disentangle the mechanisms behind these empirical findings.

The Internet reshapes China's economic geography: micromechanisms and macro effects

2020 ◽  
Vol 3 (2) ◽  
pp. 259-283
Author(s):  
Chen Yang ◽  
Tongliang An
Keyword(s):  
Economic Geography ◽  
House Prices ◽  
House Price ◽  
The Internet ◽  
Dispersion Force ◽  
Content Type ◽  
The Real Estate ◽  
Real Estate Sector ◽  
Spatial Panel Data ◽  
The Impact

PurposeBy observing facts of the “reversal of agglomeration” of Chinese enterprises during the period of rapid Internet development and using a new economic geography model combined with the data of the real estate sector, this paper deduces the influence of the “reshaping mechanisms” of the Internet on China's economic geography based on the “gravitation mechanism” of the Internet that affects the enterprises and the “amplification mechanism” of the Internet that amplifies the dispersion force of house prices.Design/methodology/approachIn the empirical aspect, the dynamic spatial panel data model is used to test the micromechanisms of the impact of the Internet on enterprises' choice of location and the instrumental variable method is used to verify the macro effects of the Internet in reshaping economic geography.FindingsIt is found that in the era of the network economy, the Internet has become a source of regional competitive advantage and is extremely attractive to enterprises. The rapidly rising house price has greatly increased the congestion cost and has become the force behind the dispersion of enterprises. China's infrastructure miracle has closed the access gap which gives full play to network externalities and promotes the movement of enterprises from areas with high house prices to areas with low house prices.Originality/valueThe Internet is amplifying the dispersion force of congestion costs manifested as house prices and is reshaping China's economic geography. This paper further proposes policy suggestions such as taking the Internet economy as the new momentum of China's economic development and implementing the strategy of regional coordinated development.

Forward-looking financial risk management and the housing market in the United Kingdom: is there a role for sentiment indicators?

2020 ◽  
Vol 21 (5) ◽  
pp. 659-678
Author(s):  
Frederik Kunze ◽  
Tobias Basse ◽  
Miguel Rodriguez Gonzalez ◽  
Günter Vornholz
Keyword(s):  
Time Series ◽  
Housing Market ◽  
House Prices ◽  
Market Survey ◽  
Content Type ◽  
Time Series Econometrics ◽  
Property Prices ◽  
The Uk ◽  
Toda And Yamamoto ◽  
Forward Looking

Purpose In the current low-interest market environment, more and more asset managers have started to consider to invest in property markets. To implement adequate and forward-looking risk management procedures, this market should be analyzed in more detail. Therefore, this study aims to examine the housing market data from the UK. More specifically, sentiment data and house prices are examined, using techniques of time-series econometrics suggested by Toda and Yamamoto (1995). The monthly data used in this study is the RICS Housing Market Survey and the Nationwide House Price Index – covering the period from January 2000 to December 2018. Furthermore, the authors also analyze the stability of the implemented Granger causality tests. In sum, the authors found clear empirical evidence for unidirectional Granger causality from sentiment indicator to the house prices index. Consequently, the sentiment indicator can help to forecast property prices in the UK. Design/methodology/approach By investigating sentiment data for house prices using techniques of time-series econometrics (more specifically the procedure suggested by Toda and Yamamoto, 1995), the research question whether sentiment indicators can be helpful to predict property prices in the UK is analyzed empirically. Findings The empirical results show that the RICS Housing Market Survey can help to predict the house prices in the UK. Practical implications Given these findings, the information provided by property market sentiment indicators certainly should be used in a forward-looking early warning system for house prices in the UK. Originality/value To authors’ knowledge, this is the first paper that uses the procedure suggested by Toda and Yamaoto to search for suitable early warning indicators for investors in UK real estate assets.

High house prices may be global systemic risk

2016 ◽  
Keyword(s):  
Interest Rates ◽  
Household Income ◽  
House Prices ◽  
House Price ◽  
Content Type ◽  
Price Boom ◽  
Advanced Economies ◽  
The Us ◽  
Property Markets

Subject The rise in global house prices. Significance In the first quarter of 2015, the global house price index, aggregating prices in 52 countries, was at about the same level as in early 2007, according to IMF data. This recovery has occurred in a period of wage gains in most emerging markets (EMs), but little or no growth in household income across most advanced economies. Living costs excluding housing have stagnated and interest rates have been exceptionally low. Yet US interest rates are rising now and global prices are unlikely to keep falling beyond 2016, while many EMs have slumped into recession. As households are hit by more adverse trends, property markets and the related sectors will be affected. Impacts The EM house price boom will be curbed by slowing income growth and weaker economic prospects. High house-prices-to-household-income ratios and household debt might require the introduction of macroprudential tools. The US housing market will stay affordable compared to its long-term average and to Europe's.

Assessing Dutch housing cycle and near-term market prospects

2020 ◽  
Vol 13 (2) ◽  
pp. 257-270
Author(s):  
Arvydas Jadevicius ◽  
Peter van Gool
Keyword(s):  
Housing Market ◽  
House Prices ◽  
House Price ◽  
Future Market ◽  
Price Inflation ◽  
Content Type ◽  
Dutch Housing ◽  
The Usa ◽  
Near Term ◽  
The Uk

Purpose This study is a practice undertaking examining three main concerns that currently dominate Dutch housing market debate: how long is the cycle, will the current house price inflation continue and is housing market in a bubble. With national house prices reaching record highs across all major cities, future market prospects became a topic of significant debate among policymakers, investors and the populace. Design/methodology/approach A triangulation of well-established academic methods is used to perform investigation. The models include Hodrick-Prescott (HP) filter, volatility autoregressive conditional heteroskedasticity (ARCH approximation) and right tail augmented Dickey–Fuller (Rtadf) test (bubble screening technique). Findings Interestingly, over the years from 1985 to 2019 research period, filtering extracts only one Dutch national housing cycle. This is a somewhat distinct characteristic compared to other advanced Western economies (inter alia the UK and the USA) where markets tend to experience 8- to 10-year gyrations. Volatility and Rtadf test suggest that current house prices in most Dutch cities are in excess of historical averages and statistical thresholds. House price levels in Almere, Amsterdam, The Hague, Groningen, Rotterdam and Utrecht are of particular concern. Originality/value Retail investors should therefore be cautious as they are entering the market at the time of elevated housing values. For institutional investors, those investing in long-term, housing in key Dutch metropolitan areas, even if values decline, is still an attractive investment conduit.

What Factors Determine Changes in House Prices and Rents?

2020 ◽  
pp. 39-56
Author(s):  
Geoffrey Meen ◽  
Christine Whitehead
Keyword(s):  
Interest Rates ◽  
House Prices ◽  
House Price ◽  
Empirical Work ◽  
International Standards ◽  
Macroeconomic Conditions ◽  
Price Trends ◽  
The Uk ◽  
Different Parts ◽  
Over Time

Whatever measure of affordability is used house prices and rents play a central role and Chapter 3 is concerned with what causes these two variables to change over time and vary across different parts of the country. Although increases in house prices have been particularly strong in the UK by international standards, other countries are also discussed. In fact, house price trends and volatility can be explained by a fairly small number of variables – and their influence has been remarkably consistent over the last fifty years. The problem has been rather that house prices are very sensitive to changes in incomes, interest rates and credit conditions and these vary greatly over time. Therefore, modest changes in macroeconomic conditions have disproportionate effects on housing. UK empirical work on market rents is less well-developed than for house prices, but the chapter considers the reasons why rents appear to have risen at a slower rate than house prices.

scholarly journals MODELLING THE IMPACT OF WIND FARMS ON HOUSE PRICES IN THE UK

2008 ◽  
Vol 12 (4) ◽  
pp. 251-269 ◽  
Author(s):  
Sally Sims ◽  
Peter Dent ◽  
G. Reza Oskrochi
Keyword(s):  
Wind Farm ◽  
Negative Impact ◽  
House Prices ◽  
Turbine Blades ◽  
House Price ◽  
Wind Farms ◽  
Causal Link ◽  
Hedonic Pricing ◽  
The Uk ◽  
The Impact

This paper discusses the findings from a UK study to determine the likely impact of a wind farm on house prices using a hedonic pricing model. The Government's commitment to wind power has resulted in a massive increase in the number of wind farms sited in the UK. This has led to concerns that their visual and aural presence could have a negative impact on proximate house prices. This paper presents an analysis of 201sales transactions from houses situated within half a mile of a 16 turbine wind farm in Cornwall, UK. Whilst no causal link was established between the presence of the wind farm and house price, there was some evidence to suggest that both noise and flicker from the turbine blades could blight certain property and that the view of countryside enjoyed by the occupier had some value which may be affected by a wind farm. Santrauka Šiame darbe aptariami JK atlikto tyrimo rezultatai, kuriuo, taikant hedonistinį kainų modelį, siekta nustatyti galimą vėjo jėgainių poveikį namų kainoms. Vyriausybės parama vėjo energijai paskatino naujo elemento, vėjo jėgainės, atsiradimą aplinkoje; susirūpinta, ar vėjo jėgainių vaizdas ir garsas galėtų neigiamai paveikti namų kainas. Šiame darbe nagrinėjamas 201 prekybinis sandoris, susijęs su namais, pusę mylios nutolusiais nuo Bears Down, Kornvalyje (JK), esančio 16 vėjo jėgainių ūkio. Nors priežastinis ryšys tarp vėjo jėgainių ir namų kainos nepastebėtas, yra įrodymų, kad jėgainės keliamas triukšmas ir menčių mirgėjimas kai kuriems nekilnojamojo turto objektams galėtų pakenkti ir kad gyventojui patikęs kaimo vaizdas gali tapti nebepatrauklus.

Monetary policy influences in Australian housing markets

2015 ◽  
Vol 8 (2) ◽  
pp. 265-286 ◽  
Author(s):  
Gregory Costello ◽  
Patricia Fraser ◽  
Garry MacDonald
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
House Prices ◽  
Housing Markets ◽  
Empirical Method ◽  
Capital City ◽  
Monetary Policy Shocks ◽  
Content Type ◽  
Policy Shocks ◽  
The Impact

Purpose – This paper aims to analyze the impact of common monetary policy shocks on house prices at national and capital city levels of aggregation, using Australian data and the Lastrapes (2005) two-part structural vector autoregressive (SVAR) empirical method. Design/methodology/approach – The Lastrapes (2005) two-part SVAR empirical method is applied to Australian housing market and macroeconomic data to assess the impact of common monetary policy shocks on house prices. Findings – Results show that while the impact of shocks to interest rates on aggregate house prices is almost neutral, the responses of state capital city house prices to the same shock can exhibit significant asymmetries. Originality/value – This paper contributes to the monetary policy–asset price debate by examining the influence of Australian monetary policy on capital city housing markets over the period 1982-2012. To the authors’ knowledge, this is the first empirical study that has adapted this Lastrapes (2005) methodology to the analysis of housing markets.

Regional economic divergence and house prices: a comparison of Germany and the UK

2019 ◽  
Vol 12 (4) ◽  
pp. 722-735
Author(s):  
Benedikt Blaseio ◽  
Colin Jones
Keyword(s):  
Human Capital ◽  
Housing Market ◽  
House Prices ◽  
House Price ◽  
Annual Data ◽  
Content Type ◽  
Economic Divergence ◽  
Price Trends ◽  
The Uk

Purpose Increasing regional wealth disparities have been explained by the role of agglomeration economies and the concentration of skilled mobile human capital. This paper aims to draw out the role of the housing market by considering the differential experience of Germany and the UK. Design/methodology/approach The empirical analysis is based on the comparison of regional house price trends in Germany and UK-based annual data from 1991 to 2015. Findings Regional house price inequality is found to have increased in both countries with the spatial concentration of skilled human capital. However, the main conclusion is that there are differential paths to regional house price inequality explained by the parameters of each country’s housing market. Originality/value The research is the first to compare and explain differential regional house price trends across countries.

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