NATIONAL BANK OF POLAND RECENT TRENDS IN THE REAL ESTATE MARKET INTERNATIONAL CONFERENCE THE HOUSING PRICES IN ROMANIA - recent developments - Ph.D. Andrei RĂDULESCU Senior Economist Researcher, IWE, Romanian Academy WARSAW 21-23 November 2017
CONTENT I. INTRODUCTION II. MACROECONOMIC CLIMATE III. REAL ESTATE MARKET IN ROMANIA IV. METHODOLOGY V. RESULTS VI. CONCLUSIONS
INTRODUCTION
REAL ESTATE IN THE POST-CRISIS CYCLE The era of everything is bubble, supported by the expansionary monetary policy after the incidence of the Great Recession A cyclical component of the economy, known as the perfect imperfect market Incidence of pro-cyclical movements (boom-bust) the wealth effect In Romania the housing market seems to be at the peak of the cycle High levels of fragmentation, asymmetry and polarization across the country, but convergence from the prices trend point of view Dependence on the First House Program and on the demand for investments purpose Strong integration with the EU real estate market
A BUBBLE IN THE MAKING IN USA & GERMANY 160 Housing prices index in US & Germany 160 140 140 120 120 100 100 80 80 60 60 40 40 20 0 Housing price index in USA Housing price index in Germany (rhs) 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 3Q 1Q 03 03 04 04 05 05 06 06 07 07 08 08 09 09 10 10 11 11 12 12 13 13 14 14 15 15 16 16 17 20 0 Source: Federal Reserve database
MACROECONOMIC CLIMATE
Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Jul-15 Sep-15 Nov-15 Jan-16 Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 May-17 Jul-17 Sep-17 STRONG GLOBAL MACRO-FINANCIAL CLIMATE 56 Real economy vs. financial economy 550 55 500 54 53 52 51 50 49 450 400 350 300 250 48 PMI Composite MSCI Global (dr.) 200 Source: Bloomberg
1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 US ECONOMY THE MATURITY OF THE CYCLE 4.5% Labor productivity and employment in US 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Labor productivity (%, YoY) -1.0% Source: BT based on US Bureau of Labor Statistics (BLS) Employment (%, YoY)
May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 EU ECONOMY AT THE PEAK OF THE CYCLE 35 Investor confidence in Euro Zone 30 25 20 15 10 5 0-5 -10-15 -20 Source: Sentix
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 ROMANIA THE CHAMPION OF GROWTH IN EU 10 GDP (%, YoY) 8 6 4 2 0-2 -4-6 Euro Zone -8 Source: Eurostat, BT forecasts Romania
2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 2Q11 4Q11 2Q12 4Q12 2Q13 4Q13 2Q14 4Q14 2Q15 4Q15 2Q16 4Q16 2Q 17 STRONG CONSUMPTION vs. LOW INVESTMENTS 20 Private consumption vs. fixed investments (%, YoY) 60 15 40 10 20 5 0 0-5 -20-10 -40-15 Source: Eurostat, AMECO, INS Fixed investments (rhs) Private consumption -60
MID-RUN MACROECONOMIC SCENARIO
REAL ESTATE MARKET IN ROMANIA
REAL ESTATE IN ROMANIA The 4 th sector in the economy (8.5% of GDP in 1H2017, below the UE average) In the post-crisis cycle since 2012, after 4 years of adjustment Residential market recovery supported by the First House Program, the improvement of the real disposable income of the population and the decline of the real financing costs First House Program a catalyst for the residential market the Government guarantees 50% of the loans, the advance is established at 5% and the interest rate is capped at ROBOR 3M + 2.5pp The residential market an investment opportunity given the lack of alternatives (low development of the financial market, low level of deposits rates) The strong increase of the housing loans 9.3% ytd to RON 63.9bn (around EUR 14bn) during 1-3Q2017, a record level
1Q 96 1Q 97 1Q 98 1Q 99 1Q 00 1Q 01 1Q 02 1Q 03 1Q 04 1Q 05 1Q 06 1Q 07 1Q 08 1Q 09 1Q 10 1Q 11 1Q 12 1Q 13 1Q 14 1Q 15 1Q 16 1Q 17 A CONSOLIDATION PROCESS 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Value added in the real estate sector (%, YoY) 50 40 30 20 10 0-10 -20 0.5 0.0 EU (28) Euroland Romania (rhs) -30-40 Source: Eurostat
Feb-04 Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 HOUSING PRICES ON AN UPWARD TREND 200 Housing prices index in Romania 180 160 140 120 100 80 60 40 20 0 Source: Imobiliare.ro
Dec-00 Jul-01 Feb-02 Sep-02 Apr-03 Nov-03 Jun-04 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb-16 Sep-16 Apr-17 STABILIZATION OF THE RESIDENTIAL PERMITS 160 Residential building permits in Romania (index, MA12) 140 120 100 80 60 40 20 0 Source: Statistics Office (INS)
METHODOLOGY
METHODOLOGY OLS TRENDPRICES - F(TRENDREALINTERESTRATE, TRENDREALWAGES, TRENDEUPRICES) TRENDPRIVATECONSUMPTION - F(TRENDPRICES, TRENDREALWAGES) TRENDPRICES = the trend component for the housing prices in Romania TRENDREALINTERESTRATE = the trend component for the real interest rate TRENDEUPRICES = the trend component for the EU housing prices TRENDREALWAGES = the trend component for the real wages in Romania Hodrick Prescott filter T Min( Y t1 2 * t Y t ) T + t 1 2 (( Y * t * * t1 1 Yt ) ( Yt Y )) * 2 Quarterly statistics from Eurostat, Statistics Office, National Bank of Romania (1999-2017) E-Views
RESULTS
STRONG DEPENDENCE ON EU PRICES 130 TRENDPRICES TRENDEUPRICES 125 120 115 110 105 100 95 09 10 11 12 13 14 15 16 Source: estimates based on the methodology described above
1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 REGIONAL CONVERGENCE IN TERMS OF PRICES 125 Housing price index in Euroland and CEE 120 115 110 105 100 95 90 85 80 75 Euroland BG CZ HU PL RO Source: Eurostat
4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 REAL ESTATE PRICES DEPENDENT ON REAL WAGES 3% Housing prices vs. real wages (trend) 9% 2% 9% 1% 8% 0% 8% -1% 7% -2% 7% -3% 6% -4% 6% -5% 5% -6% 5% Trend housing prices (%, YoY) Trend real wages (%, YoY) (rhs) -7% Source: estimates based on the methodology described above 4%
4Q 09 1Q 10 2Q 10 3Q 10 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 PRICES INTEREST RATES INVERSE RELATIONSHIP 3% Housing prices vs. real interest rates (trend) 12% 2% 1% 10% 0% -1% 8% -2% 6% -3% -4% 4% -5% -6% 2% Trend housing prices (%, YoY) Trend real interest rate (%, YoY) (rhs) -7% Source: estimates based on the methodology described above 0%
CONCLUSIONS
THE WEALTH EFFECT 10% Private consumption vs. housing prices (MA4, YoY) 9% 8% 5% 7% 6% 0% 4Q 10 1Q 11 2Q 11 3Q 11 4Q 11 1Q 12 2Q 12 3Q 12 4Q 12 1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16 1Q 17 5% -5% 4% 3% -10% 2% 1% Housing prices (%, YoY) Private consumption (%, YoY) (rhs) -15% Source: estimates based on the methodology described above 0%
THE HOUSING MARKET AT THE INFLEXION POINT A starting point for studying the relation between the residential prices and the real economy The results in line with the economic theory - a negative dependence of the housing prices on the real interest rate The upward trend for the financing costs to impact the residential market in the future and also the dynamics of the NPL loans In Romania the housing prices highly dependent on the EU trend Strong wealth effect in Romania the increase of the residential prices contributed to the strong dynamics of the private consumption The persistence of the high risk perception, the expected change of the trend for the housing prices, the continuity of the migration trend for the active population may trigger the end of the post-crisis cycle earlier than anticipated.
Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 DIVERGENT ERP TREND (RO vs. US) 6.5 ERP RO vs. ERP US 45 6 40 5.5 35 5 30 4.5 25 4 20 3.5 15 3 10 2.5 ERP trend US ERP trend RO (rhs) 2 5 0 Source: BT estimates
ERP TO CONTINUE THE UPWARD TREND 45 40 35 30 25 20 15 10 5 2008 2010 2012 2014 2016 2018 ERPROMANIAF Source: BT estimates and forecasts
THANK YOU! Ph. D. Andrei RĂDULESCU E-mail: andrei.radulescu@btrl.ro Tel: (004) 0730 727 516