Archive for October, 2009
Canadian Housing Market Not Overvalued
In a recent IMF Working Paper titled “Canadian Housing Market Overvalued? A Post-Crisis Assessment”, Evridiki Tsounta argues that the Canadian housing market is at equilibrium. Unlike the US and UK, house prices in Canada did not get too overvalued. In th US, prices Florida, Las Vegas, California, etc. soared in the past few years before the credit crunch/recession began. This type of frenzy did not occur in Canada. The stable housing market is one reason why Canadian banks are in much better shape than their US peers.
The abstract from Tsounta’s paper:
“Canadian house prices have increased significantly between 2003 and early 2008, with a marked downward trend since mid-2008, especially in the resource-rich western provinces. This paper estimates the evolution of equilibrium real home prices during this period in key provinces and finds that, following recent declines, home prices are now generally close to equilibrium throughout Canada. However, house prices in Alberta and British Columbia remain around 8 percent overvalued at the end of the sample (second quarter of 2009). Despite the limitations of econometric estimates of house-price dynamics, the measured small degree of overvaluation suggests that the Canadian housing market is essentially at equilibrium.”
Charts – House Price Increases over the years
Home Prices Overvaluation in Canada Provices
Existing Homes Price Change
For more details, go here.
Households Wealth Comparison: USA vs Canada
The chart below household wealth in USA and Canada in terms of home owner’s equity, mortgage debt and personal disposable income:
Source:Is the Canadian Housing Market Overvalued? A Post-Crisis Assessment, Evridiki Tsounta, IMF working Paper
Norwegian Banks’ Tier 1 Capital Ratio and Other Measures
Norwegian banks are in a strong position compared to other banks. The following are some of the charts that show the strength and other measures of banks in Norway:
Norwegian Banks’ Tier 1 Capital Ratio
Norwegian Banks’ Non-Performing Asset Ratios (NPAs)
Norwegian Banks’ Tier 1 Capital Ratio with Minimum Tier 1 Required
Source: Norges Bank
The Top Oil Suppliers of China
The price of oil rose above $81 on October 23 due to the expectation that the global economy is in the early stages of recovery and also due to the weakness of the US dollar.
One of the major consumers of oil in the world is China. As China’s economy expands due to many infrastructure projects China needs more oil. Rising sales of cars also adds to the demand for oil. In recent months China is strengthening its trade ties with oil-rich countries such as Venezuela, Iran,etc.
The major suppliers of oil to China are shown below:
Source: The Wall Street Journal
Saudi Arabia the largest supplier of oil to China at 750,000 barrels per day. Iran comes second followed by Angola. The US is asking some middle-eastern countries to lift their sanctions on oil exports to China in order to weaken the sales of Iranian oil to China. The US wants China to be less dependent on Iran for oil. Iranian influence is growing in Asia due to its oil exports.
Econ Links #1: Employment, Debt, Big Banks Edition
Employment Shrinkage: Plus ca Change?
Debt Stress in Middle Class America
Subprime mortgages: Myths and reality
CEO of ING Insurance to Woods: Who Cares about Austria’s economy?
“Bernanke: Smaller Banks Not Necessarily the Answer”
U.S. Faces Second Lost Decade “Because” of Misguided Stimulus
Why the Industrial Revolution Was in Great Britain
Capital Flows into Emerging Markets Gains Momentum
After a pause last year and in the first quarter of this year, net capital flows into emerging market economies has picked up in 2nd quarter and has gained momentum in the last quarter. Net private capital flows into emerging markets is projected to be $349B th year compared to $649B in 2008. In 2010, it is expected to reach $672 B. This is because historically a long low rate interest environment in developed will lead to higher capital flows to emerging markets.
Countries that are the receipents of the largest amount of portfolio equity investments are Asia (Korea, China and India), South Africa, Brazil and Russia.
The effect of all these capital flows into emerging markets are driving those markets higher. Asia and Latin America are leading the Emerging Europe as the chart shows below:
Sources:
Capital Flows to Emerging Market Economies, Institute of Internationl Finance
Impact of the Global Financial Crisis and Its Implications for the East Asian Economy, IMF
