IFC Satellite meeting at the ISI Regional Statistics Conference on Is the household sector in Asia overleveraged: what do the data say? Kuala Lumpur, Malaysia, 15 November 2014 Assessing household balance sheet and risks three challenges 1 Jacques Fournier, Bank of France 1 Discussion of the presentation Using household balance sheet and housing data for systemic risk assessment and policy formulation Malaysia s experience by Chin Ching Lau, Central Bank of Malaysia. The views expressed are those of the author and do not necessarily reflect the views of the BIS or the central banks and other institutions represented at the meeting.
USING HOUSEHOLD BALANCE SHEET AND HOUSING DATA FOR SYSTEMIC RISK ASSESSMENT AND POLICY FORMULATION Discussion by Jacques Fournier Banque de France Kuala Lumpur, 15 November 2014 1
Man often knows what he does, but never knows what will do what he does (Paul Valéry) We have to recognize that there is no road that guides us from what exists to what should exist (Albert Einstein) 2
Experience demonstrates that property booms are often the source of vulnerabilities that lead to systemic crisis To mitigate this risk, three conditions have to be met: 1. Reliable and comparable data 2. Macro economic analysis 3. Adapted policy measures + a close interaction between these three aspects is warranted, not only for presentations but also in real Central Bank life. 3
1. First challenge : reliable and timely data 4
In 2009, the G20 asked the BIS and the member central banks to collect and publish residential property prices. The coverage is 55 countries today. Quality-adjusted prices indices that cover the whole sector (all types of dwelling and all locations in a given country) are available for about two thirds of the 55 countries. This database is a huge progress and a key tool for statisticians and economists. The process is beginning only: more countries could join, in particular the hedonic approach Some questions marks: comparing absolute prices and not only evolutions? 5
Residential property prices indices may convey contrasted messages An example : Germany Source: BIS 6
France is another example of indices divergence 160 140 120 100 80 60 40 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Property price index, existing dwellings, transaction-based hedonic regression, seasonnaly adjusted, French Institute of Statistics, Q1 2006 = 100 Property price index, existing dwellings, average purchase cost, no quality adjustments,crédit Logement CSA, Q1 2006 = 100 Property price index, existing dwellings, transaction based hedonic regression, FNAIM (private entity), S1 2006 = 100 Capital value growth index for the residential sector owned by professionnals, Investment Property Databank, Q1 2006 = 100 2014 Source: INSEE, FNAIM, Crédit logement, IPD. Banque de France computation 7
Geography matters 160 Property price indices for France, Paris, and French regions, Q1 2009 = 100 160 Property price indices for several European capitals, Q1 2009 = 100 140 140 120 120 100 100 80 80 60 60 40 40 20 1998 2000 2002 2004 2006 2008 2010 2012 2014 20 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 France Paris (flats only) French regions (excluding Ile-de-France) London Amsterdam Paris inner suburbs Madrid Dublin Source: INSEE, ONS, CSO, INE, CBS. Compilation: Banque de France 8
By contrast to Europe and the US, house prices rise strongly in many Asian countries Source: BIS 9
2. Making an economic and financial analysis 10
A simple early warning signal: Residential property prices corrections generally took place in countries with HH debt to GDP above 70% 140 120 100 80 60 40 20 Ratio of households debt to gross domestic product at market prices (in %) 140 120 100 80 60 40 20 Household debt (% of GDP) 0 Q1 2002 Q1 2004 Q1 2006 Q1 2008 Q1 2010 Q1 2012 Q1 2014 Belgium Spain France Ireland Sweden Source: ECB 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 France Germany UK USA Sources : Banque de France, Bank Negara Malaysia, BIS, IMF 11
And when the crisis comes, prices can be plummeting dramatically 12
3. Policy steps 13
As said in the presentation, LTV is not fully convincing 14
Property prices boom is a fairly good leading indicator of systemic crises Source: BIS 15
3 main tools: At the micro level but for macro purposes: Pillar 2 of the international solvency ratio Household indebtedness to GDP Credit growth to GDP Still a question mark: what about the shadow banking? 16