Hot real estate market a red flag?
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Hot U.S. real estate a potential red flag: Fed's Rosengren
The run-up in U.S. real estate prices could potentially amplify any future economic downturn, a Federal Reserve official said on Tuesday, urging regulators globally to consider tools beyond interest rates that could help cool the sector.
A sharp downturn in U.S. residential and commercial property prices in 2007 and 2008 rocked banks that were highly leveraged in the sector, sparking the global financial crisis and deep recession. With the economic recovery now well under way, bank holdings of commercial and apartment mortgages rose 9 percent and 12 percent, respectively, in the past year.
Eric Rosengren, president of the Boston Fed and an influential financial regulator at the U.S. central bank, said the "sharp" rise in apartment prices in particular may signal financial instabilities that interest rates, which are only gradually rising, may not be able to contain.
"Because real estate holdings are widespread, and the monetary and macroprudential tools for handling valuation concerns are somewhat limited, I believe we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn," Rosengren said in prepared remarks for delivery to a banking supervision conference in Bali, Indonesia.
He noted that real estate has repeatedly played a big role in episodes of financial instability, and that prices are now outpacing growth in building owners' operating income.
Since equilibrium interest rates - the Fed's traditional tool to guide the economy - could remain lower than decades past, Rosengren said, "this would require a greater emphasis on macroprudential tools if valuations became a source of concern."
Such tools include rules and restrictions on bank holdings. "It is prudent to keep a healthy, ongoing focus on the sufficiency of these tools and their ongoing enhancement," he added.
http://mobile.reuters.com/article/idUSKBN16T06T
The run-up in U.S. real estate prices could potentially amplify any future economic downturn, a Federal Reserve official said on Tuesday, urging regulators globally to consider tools beyond interest rates that could help cool the sector.
A sharp downturn in U.S. residential and commercial property prices in 2007 and 2008 rocked banks that were highly leveraged in the sector, sparking the global financial crisis and deep recession. With the economic recovery now well under way, bank holdings of commercial and apartment mortgages rose 9 percent and 12 percent, respectively, in the past year.
Eric Rosengren, president of the Boston Fed and an influential financial regulator at the U.S. central bank, said the "sharp" rise in apartment prices in particular may signal financial instabilities that interest rates, which are only gradually rising, may not be able to contain.
"Because real estate holdings are widespread, and the monetary and macroprudential tools for handling valuation concerns are somewhat limited, I believe we must acknowledge that the commercial real estate sector has the potential to amplify whatever problems may emerge when we at some point face an economic downturn," Rosengren said in prepared remarks for delivery to a banking supervision conference in Bali, Indonesia.
He noted that real estate has repeatedly played a big role in episodes of financial instability, and that prices are now outpacing growth in building owners' operating income.
Since equilibrium interest rates - the Fed's traditional tool to guide the economy - could remain lower than decades past, Rosengren said, "this would require a greater emphasis on macroprudential tools if valuations became a source of concern."
Such tools include rules and restrictions on bank holdings. "It is prudent to keep a healthy, ongoing focus on the sufficiency of these tools and their ongoing enhancement," he added.
http://mobile.reuters.com/article/idUSKBN16T06T
evince
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Thing1
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I've been reading about that, and also another round of "irrational exuberance" in the stock market.
I hope those reports are wrong. But I don't think we've really fixed the mistakes that led to the last crash in general. It's one of the inherent flaws of capitalism, imo - profit is really the only motivator, ultimately.
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Thing1
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I've been reading about that, and also another round of "irrational exuberance" in the stock market.
I hope those reports are wrong. But I don't think we've really fixed the mistakes that led to the last crash in general. It's one of the inherent flaws of capitalism, imo - profit is really the only motivator, ultimately.
evince
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cawacko
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cawacko
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I don't know if I called it a flaw, it's kind of how the system "clenses" itself in a way. Anecdotal but I had dinner with two guys last night who were asking about (residential) real estate investment here in the Bay Area as they want to get into it. I told them my experiences but I went on about the thought we are in a bubble and they are at risk if they invest now. We can't do anything to stop people from investing but they go in now eyes wide open they could be buying at the peak.
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cawacko
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cawacko
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I don't know if I called it a flaw, it's kind of how the system "clenses" itself in a way. Anecdotal but I had dinner with two guys last night who were asking about (residential) real estate investment here in the Bay Area as they want to get into it. I told them my experiences but I went on about the thought we are in a bubble and they are at risk if they invest now. We can't do anything to stop people from investing but they go in now eyes wide open they could be buying at the peak.