Motivation
Introduction
Medium-term cycles
Long-term determinants
Exemple des cycles immobiliers en France L. Ferrara M1 - Mod´elisation Appliqu´ee U. Paris Ouest Mars 2013
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Motivations
I
Working Paper Banque de France 2010
I
Recently, evidence of strong relationships between macroeconomics and housing markets (Mullbauer and Murphy, 2008, for UK and US, or Goodhart and Hofmann, 2008, for 17 industrialized countries)
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Here: Application to France
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Focus on cyclical relationships
I
Starting point in Leamer (2007) : ’Housing is the business cycle’ in the US
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In the euro area recessions are less frequent and less related to housing cycles (see Figure)
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Idea: Decompose variables into a trend and medium-term cycles (i.e.: Deviation to trend cycles or growth cycles) In this paper, 2 main results:
I
I
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Commonalities between medium-term economic and housing cycles Idiosynchraties in trends: A review of determinants of housing trends
Motivation
Introduction
Medium-term cycles
Long-term determinants
Real Housing Prices (logs, 1980Q1-2009Q2)
2.0
1.8
1.6
1.4
1.2
1.0
0.8 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Trend-Cycle decomposition through Band-Pass filters
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Experimental design
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Several alternatives for trend-cycle decomposition (see Alvarez and Cabrero, 2009, or Ferrara and Koopman, 2009)
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Choice of the 2-steps HP filter (band-pass filtering)
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Relationship between λ and cut-off frequecy ω0 −1 λ = 4(1 − cos(ω0 ))2
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Band-pass between 1.5 and 8 years (λ = 1 and λ = 677)
(1)
Motivation
Introduction
Medium-term cycles
Long-term determinants
Empirical Results
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Objective: Etablish cyclical relationships between a set of variables using: I I
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Correlation analysis Turning point analysis
Selected variables 1980q1 - 2009q2: I
I
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Macro: GDP, Household investment, Employment in construction, IPI in construction Housing: Real prices, Sales, Permits, Starts, Survey by Property Developers Finance: Long (Gov. bonds 10 years) and Short (Euribor 3-months) interest rates
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
gdp 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1996
1998
2000
2002
2004
2006
2008
1996
1998
2000
2002
2004
2006
2008
1998
2000
2002
2004
2006
2008
housing prices 4 2 0 -2 -4 -6 -8 -10 1980
1982
1984
1986
1988
1990
1992
1994
sales 30 20 10 0 -10 -20 -30 -40 1980
1982
1984
1986
1988
1990
1992
1994
household investment 6 4 2 0 -2 -4 -6 -8 1980
1982
1984
1986
1988
1990
1992
1994
1996
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
employment 2.4 1.6 0.8 -0.0 -0.8 -1.6 -2.4 -3.2 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2003
2005
2006
2008
survey 40 20 0 -20 -40 -60 1985
1987
1989
1991
1993
1995
1997
1999
2001
2007
2009
short rate 40 20 0 -20 -40 -60 -80 -100 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
1996
1998
2000
2002
2004
2006
2008
long rate 15 10 5 0 -5 -10 -15 -20 1980
1982
1984
1986
1988
1990
1992
1994
Conclusions
Motivation
Introduction
20 15 10 5 0 -5 -10 -15
Medium-term cycles
Long-term determinants
permits
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
housing starts 15 10 5 0 -5 -10 -15 -20 -25 -30 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
6 4 2 0 -2 -4
ipi building
-6 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Correlation Analysis
GDP Prices Sales Invest. Employ. Survey Short Long Permits Starts IPI
GDP 1 0.72 0.64 0.75 0.79 0.80 0.77 0.74 0.70 0.80 0.81
Prices 0.44 1 0.56 0.81 0.75 0.80 0.58 0.73 0.72 0.82 0.64
Sales 0.01 0.20 1 0.53 0.54 0.67 0.54 0.44 0.66 0.69 0.40
Invest. 0.80 0.60 0.23 1 0.79 0.81 0.65 0.69 0.70 0.87 0.72
Employ. 0.72 0.54 0.21 0.65 1 0.71 0.66 0.69 0.63 0.71 0.85
Survey 0.57 0.48 0.10 0.53 0.46 1 0.66 0.59 0.82 0.84 0.72
Short 0.68 0.18 -0.37 0.46 0.56 0.28 1 0.66 0.54 0.64 0.74
Long 0.53 0.19 -0.42 0.39 0.64 0.21 0.57 1 0.59 0.67 0.65
Permits 0.32 0.61 0.38 0.40 0.17 0.39 0.10 -0.13 1 0.86 0.56
Starts 0.45 0.62 0.40 0.57 0.22 0.40 0.09 0.05 0.67 1 0.63
Table: Concordance indexes for contemporaneous variables (lower diagonal) and contemporaneous correlation (upper diagonal) from 1980 Q1 to 2009 Q2.
IPI 0.60 0.26 -0.40 0.39 0.57 0.31 0.60 0.54 0.13 0.31 1
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Correlation Analysis
Results I
Strong correlations between GDP and Housing investment (0.80) and Employment (0.72)
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Overall, contemporaneous correlation coefficients appear appear quite small in comparison of what could be expected
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Focus on cross-correlations
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Cross-correlation with GDP prices
short
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 -10
-5
0
5
10
-10
-5
sales
0
5
10
5
10
5
10
5
10
5
10
long
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 -10
-5
0
5
10
-10
-5
invest
0
permits
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 -10
-5
0
5
10
-10
-5
employment 1.00
0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00
0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 -10
-5
0
0
starts
1.00
5
10
-10
-5
survey
0
ipi building
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00
1.00 0.75 0.50 0.25 0.00 -0.25 -0.50 -0.75 -1.00 -10
-5
0
5
10
-10
-5
0
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Cross-correlation Analysis
GDP GDP Prices Sales Investment Employment Survey Short rate Long rate Permits Starts IPI
-2 -3 0 0 -1 0 -8 -4 -1 0
Prices 0.64 -2 +1 +2 +1 +3 +3 0 0 +2
Sales 0.48 0.36 +3 +7 +3 0 -1 +1 +2 -2
Invest. 0.80 0.70 0.60 +1 0 +1 +3 -3 -1 0
Employ. 0.72 0.71 0.27 0.69 -2 0 0 -4 -4 0
Survey 0.58 0.50 0.35 0.53 0.55 +2 -7 -2 -1 +2
Short 0.68 0.54 -0.37 0.50 0.56 0.37 -1 -5 -4 -1
Long -0.52 0.44 -0.49 0.54 0.64 -0.41 0.59 +6 +5 +8
Permits 0.58 0.61 0.44 0.63 0.52 0.42 0.44 -0.48
Starts 0.62 0.62 0.61 0.70 0.47 0.44 0.43 -0.47 0.69
+1 +4
Table: Highest cross-correlation coefficients among all leads and lags (upper diagonal, lags in parenthesis) and leads/leags (lower diagonal), from 1980 Q1 to 2009 Q2. A negative number indicates that the series in row leads the series in column with an advance equal to this number, and conversely.
+3
0 0 -0 0 0 0 0 -0 0 0
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Cross-correlation with GDP
I
A leading pattern in housing variables (Real prices, Sales, Permits and Starts)
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Residential investement is strongly related to the economic cycle, in coincident manner
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Employent and IPI in construction are coincident with GDP
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Short rate (3m): a positive correlation with a short delay (0-1 quarters)
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Long rate (10y): a negative correlation with lead of 2 years.
Motivation
Introduction
Medium-term cycles
Long-term determinants
Turning Point Analysis
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Analysis based on turning points in the cycles
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TPs are identified through the Bry-Boschan algorithm
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A lead-lag analysis is carried out
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Concordance indexes are computed
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The test of non-synchronisation by Harding and Pagan is implemented
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Turning Point Analysis GDP
Prices
Invest
Employ
81Q2 (-5) 84Q4 (-10)
Sales 81Q1 () 83Q1 (+2) 86Q1 (-5)
P
82Q3
80Q4 (-7) 85Q2 (-8)
82Q4 (+1) 85Q1 (-9)
T
87Q2
90Q1
90Q4 (+3)
89Q4 (-1)
89Q3 (-2)
91Q2 (+5)
89Q1 (-4)
93Q3
93Q1 (-2) 94Q3 (-3) 98Q2 (+5)
93Q1 (0) 94Q1 (-5) 95Q2 (-7)
93Q2 (-1) 95Q1 (-1) 98Q1 (+4)
93Q4 (+1) 95Q3 (+1) 98Q1 (+4)
93Q1 (-2) 94Q2 (-4) 95Q3 (-6)
T
Survey 82Q4 ()
Short 80Q3 () 81Q4 (-3) 86Q3 (-3)
P T P T P T P
95Q2
T
97Q1
90Q1 (0) 91Q2 () 92Q4 () 94Q2 (+3) 95Q2 (0) 96Q4 (-1)
Long
Permits
Starts
81Q4 (-3) 86Q3 (-3) 87Q4 () 89Q2 () 90Q3 (+2)
82Q4 (+1) 84Q2 (-12)
88Q4 (-5)
89Q4 (-2)
93Q4 (+1) 95Q1 (-1) 99Q1 (+8)
93Q1 (-2) 94Q3 (-3) 97Q1 (0)
93Q2 (-1) 94Q4 (-2) 97Q3 (+2)
IPI
92Q1 () 93Q3 (0) 95Q2 (0) 97Q1 (0)
Table: Peaks and troughs dating for growth cycles estimated by using HP2 filter with bandwidth 1.5-8 years. Lead and lags viz the GDP growth cycle turning points are in parenthesis.
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Turning Point Analysis
GDP
Prices
P
00Q4
T
03Q2
00Q2 (-2) 03Q2 (0)
P T
Sales 99Q1 () 00Q1 ()
Invest
Employ
99Q4 (-4) 04Q2 (+1)
01Q1 (+1) 04Q3 (+5)
Survey 98Q4 () 01Q3 ()
Short 98Q2 () 99Q2 () 00Q4 (0) 04Q1 (+3)
¯ X SD
Starts
IPI
98Q4 (-8) 03Q1 (-1)
99Q1 (-7) 03Q2 (0)
00Q4 (0) 04Q4 (+6)
06Q4 (-4)
07Q3 (-1)
08Q1 (+1)
(-3.8) 4.1
(-1.6) 2.8
(1.2) 2.4
06Q4 (-4)
07Q1 (-3)
07Q4 (0)
07Q4 (0)
07Q3 (-1)
08Q2 (+2)
(-2.0) 4.4
(-2.7) 3.2
(-1.7) 4.2
(1.0) 4.2
(-1.3) 1.4
(0.1) 2.3
(0.1) 3.4
T 07Q4
Permits
00Q2 (-2) 03Q2 (0) 04Q2 () 05Q3 () 07Q3 (-1)
P
P
Long
Table: Peaks and troughs dating for growth cycles estimated by using HP2 filter with bandwidth 1.5-8 years. Lead and lags viz the GDP growth cycle turning points are in parenthesis.
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Turning Point Analysis: Harding-Pagan test of no-synchronisation
Prices Sales Invest. Employ. Survey Short Long Permits Starts IPI
Concordance 0.77 0.71 0.77 0.83 0.85 0.77 0.74 0.77 0.84 0.81
Lead (-) / Lag (+) -2 -4 -1 +1 -2 0 0 -3 -1 0
t-stat Harding-Pagan 4.10 3.04 4.48 5.69 6.58 4.94 5.26 4.50 5.52 3.60
Table: Cross-Concordance indexes for variables with GDP cycle, optimal leads and lags and t-stat of the Harding-Pagan test of non-synchronisation, from 1980 Q1 to 2009 Q2.
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Conclusions on cycles
I
Evidence of common movements in housing and macroeconomic cycles in France
I
Housing cycle, measured by both real prices and volumes, leads GDP cycle with an average advance of around 2Q
I
Residential investement is strongly related to the economic cycle, in a coincident manner
I
Employment and IPI in construction are rather coincident with GDP
Motivation
Introduction
Medium-term cycles
Long-term determinants
Long-term trends gdp 6.08
investment 3.1
6.00 3.0 5.92 5.84
2.9
5.76 2.8
5.68 5.60
2.7 5.52 5.44
2.6 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
prices 0.7
sales 3.5
0.6
3.4
0.5 3.3 0.4 0.3
3.2
0.2
3.1
0.1 3.0 0.0 2.9
-0.1 -0.2
2.8 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
A review of structural factors for housing markets developments 1. Among the main euro area countries, France possesses the lowest share of new housing loans to households whose rate is adjustable (less than 10% in comparison with 40% for EA as a whole) 2. The type of financial instruments used for housing financing is important, notably the extent to which mortgage equity withdrawals intruments exist. In France such instruments have been only introduced recently (in 2006). This could help to reduce the amplitude of the housing cycle for descending phase of the cycle. 3. Regarding solvability, French households indebtedness is still quite moderate in comparison with other OECD countries (see Figure)
Motivation
Introduction
Medium-term cycles
Long-term determinants
Household debt as percentage of GDP (source:OECD)
Household debt as a percentage of GDP 1985 1
140
2005 3
19952
120
100
80
60
Average 2005
Average 1995 Average 1985
40
20
0 ITA
FIN
FRA
SWE
1. 1987 for the United Kingdom. 2. 1999 for Ireland. 3. 2004 for Japan, Denmark and Spain.
ESP
DEU CAN
IRL
JPN
NZL
AUS
USA
GBR
NLD DNK
Conclusions
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
A review of structural factors for housing markets developments
4. Over the recent period, there is no sign of overinvestment on the housing market in terms of GDP (see Figure) 5. A growing part of French people would like to become home owner. According to Eurostat (2009) 58% of French households are owner in 2007 (47 % in 1978), compare to 83% in Spain and 72% in Italy (EU Average is 65%).
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Ratio: Residential Investment / GDP 9%
Long-term average (1949Q12009Q1) = 5.8% 7%
5%
5.1% in 2009Q1
3% 1949
1959
1969
1979
1989
1999
2009
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
A review of structural factors for housing markets developments
6. Demographic argument. Both current situation and projections are supportive for fuelling the need of housing in the future. The size of French housholds has diminished. According to Insee, the share of housing occupied by 1 person grew from 19.1% in 1954 to 32.5% in 2005. Jacquot (2006) forecasts that this share will lie between 43.2% and 46% in 2030. 7. Housing investment is becoming a crucial element in the strategy dedicated to improve the standard of living in the retirement period. Furthermore, fiscal incentives (Loi Scellier, ...) and excessive volatily on financial markets also contribute to housing markets demand.
Motivation
Introduction
Medium-term cycles
Long-term determinants
Conclusions
Conclusions
I
Evidence of common movements in housing and macroeconomic in France for medium-term cycles
I
Housing cycle leads the macro cycle
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In this respect, the recent downturn in both real economy and housing sector does not constitute an exception.
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Idiosyncratic long-term trends: various structural factors could help to sustain housing markets develoments in the long run.
