NEWS

Residential property prices in Switzerland - 1st quarter 2017

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• The UBS Swiss Real Estate Bubble Index remained in the risk zone at 1.39 points in the first quarter of 2017 following a moderate increase.

• The increase in home prices outpaced the increase in rents and income.

• Demand for buy-to-let investments also rose, in spite of heightened market risks.

The UBS Swiss Real Estate Bubble Index remained in the risk zone in Q1_2017 at 1.39 index points. The index increased moderately over the slightly revised figure for the previous quarter. The rise was driven mainly by a slight acceleration in nominal price increases for owner-occupied homes amid stagnant rents and income. Demand for buy-to-let investments rose as well. Buy-rent ratio deteriorates further Stagnant rents caused the buy-rent ratio to deteriorate for the tenth time in a row in Q1 2017. At the same time, the percentage of loan applications received by UBS for properties not intended for personal use experienced another slight increase. This can be explained by the fact that buy-to-let investments can produce high returns on equity if they are highly leveraged. Given the continued large number of building permits, it seems likely that construction activity will remain (too) strong in this current year. We estimate that the construction of new apartments will exceed the additional demand for apartments by approximately five to ten thousand units this year. This should keep rents on a downward trajectory, particularly for new apartments. In other words, life is about to get even more difficult for landlords. Investor demand for owner-occupied homes is primarily attributable to the entrenched expectation that interest rates will remain low. However, a rate increase would most likely bring strong demand for buy-to-let investments to an abrupt halt.

Regional analysis The Geneva, Nyon and Morges regions are in a correction phase. Local owner-occupied housing markets have already cooled in these regions. In the past three years, price corrections in Valais, Bernese Oberland and parts of Grisons mean that there are no longer tourist regions on the risk map. The regional risk focus is gradually shifting from Lake Geneva to the regions of Zurich and Central Switzerland.

Methodology The regional risk map shows those regions posing the greatest macroeconomic risks in the event of a Swiss-wide correction. The analysis is based on the population size, the price level and the price behavior for owneroccupied homes.

Chief Investment Office WM | 5 May 2017 | Translation: Matthias Holzhey, economist, Claudio Saputelli, economist, Maciej Skoczek, CFA, economist, Source UBS.

Swiss National Bank : economic and monetary conditions update

 

Interest on sight deposits at the Swiss National Bank remains at 0.75% below zero, policymakers said on Thursday. They also decided to leave the target range for the three-month Libor (London Interbank Offered Rate) unchanged at between 1.25% and 0.25% under the neutral level. The central bank reiterated it will "remain active in the foreign exchange market as necessary," willing to intervene to ease upward pressure on the franc.

The inflation outlook was slightly dampened. After 0.3% this year, the main gauge is expected in 2018 at 0.3% or 0.1 percentage points less than what was estimated in March. The rate-setters took the forecasted rate also 0.1 points lower for the year after that, to 1%. Growth in 2017 is still expected to reach 1.5%.

"In the first quarter, growth in mortgage lending remained constant at a relatively low level, and momentum in residential real estate prices continued at a measured pace. At the same time, owing to developments in fundamentals and the generally subdued activity on the mortgage and residential real estate markets, imbalances have fallen slightly in recent quarters. Nevertheless, they are still just as pronounced as they were in 2014, when the sectoral countercyclical capital buffer was set at 2%," the statement said.

US Prime Working-Age Population near 2007 Peak

Two articles about demography.

The prime working age population peaked in 2007, and bottomed at the end of 2012. As of May 2017, there were still fewer people in the 25 to 54 age group than in 2007.

At the beginning of this year - based on demographics - it looked like the prime working age (25 to 54) would probably hit a new peak in 2017.  

However, since the beginning of the year, the prime working age population has declined slightly.

Changes in demographics are an important determinant of economic growth, and although most people focus on the aging of the "baby boomer" generation, the movement of younger cohorts into the prime working age is another key story. Here is a graph of the prime working age population (25 to 54 years old) from 1948 through May 2017.

Note: This is population, not work force.

Prime Working Age Populaton

There was a huge surge in the prime working age population in the '70s, '80s and '90s.

The prime working age labor force grew even quicker than the population in the '70s and '80s due to the increase in participation of women. In fact, the prime working age labor force was increasing 3%+ per year in the '80s!

So when we compare economic growth to the '70s, '80, or 90's we have to remember this difference in demographics (the '60s saw solid economic growth as near-prime age groups increased sharply).

The good news is the prime working age group should start growing at 0.5% per year - and this should boost economic activity.  

 

By: Calculated Risk | Wednesday, June 7, 2017 at 03:59 pm EST

 

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Demographics will decide the world’s history

Demographics will decide the world's history within the next decades. 2045 is the year in which, as the U.S. Census Bureau projects, Whites will become a minority in their own country. The same trend is observable in Europe. In the eighties these continents began their transformation from relatively monolithic into multi-ethnic or multicultural societies, which resulted in a rapid increase in the US Latino population, and the influx of immigrants from Africa and Asia into Europe. 

The native European population growth will soon reach its peak and then the reverse trend, already observable in Russia and Poland, will set in. The population of the Netherlands and Germany is only expanding due to the rising number of second generation non-Western migrants. In no time (historically speaking) will the European ethnic composition resemble that of Brazil or India.

The unprecedented rise of Front National, the riots in the Banlieu, the first Turkish party in the Dutch Parliament, Islam-driven terrorism, the Black Lives Matter movement and the endless discussions in the Western media between multi-cultural opponents and proponents, Whites and non-Whites, Islamists and Christians are just a few pieces in the broader picture, and we expect much more to come.

Significant demographic changes are by no means restricted to Europe. The population of Africa, which is likely to keep on growing at the current unprecedented pace till 2100, is already outnumbering that of Europe, and India’s population will outnumber that of China, which will be at its peak in 2030. In 2100 Africa will make up 40% of the world’s population, while contributing close to nothing to the world’s GDP. Africa’s GDP is only 2% of the World’s total GDP.

Far more people will live in Africa and South Asia than in Europe and North America. A neoliberal economist’s take on this phenomenon is that we are all the same, replaceable human beings, irrespective of race, heritage, or religion, hence there is no reason to believe why Africans should not be as productive as the Japanese and as efficient as Germans. If such is the case then the shrinking populations of Europe, Japan, the US and China will be compensated for by Africa’s young, energetic, vibrant men and women who will, they say, successfully take over and handle the world’s growth engine.

A cursory look at the condition of those American cities with African-American majorities, Haiti or African states does not raise such high hopes, which is why our team holds a different view. Sub-Saharan Africa’s recorded history started about a hundred years ago, hand in hand with the beginning of the European colonization, which shows that even African historical consciousness has been shaped by Europeans, to say nothing of the continent’s economy, which continues to be dependent on the technical and financial support from Europe and China. The approaching shift in demographics will create ethnic tensions, and will have a profound impact on the world’s economy at large.

Article published by Gefira on May 5th, 2017

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