Home disadvantage: risks in housing markets

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1:04The Economist. Hello and welcome to the Intelligence from The Economist. I'm Jason Palmer. Today on the show checking in on Australia's social media ban and Israel's series Fowder as a Study in Trauma. But first, we've been taking careful note of rising bond yields all over the rich world and the jitters that come with them. High yields mean high borrowing costs for governments, businesses and consumers alike. Homeowners and house hunters might be reckoning that that has happened that are not so distant pasts. All that bond, twitchiness doesn't mean much for them.

2:04Well, this time around, maybe it will. The first thing people turn to when thinking about bond yields is the effect on government debt and government borrowing, but it could have another big effect on the economy, which is in the housing market. Calamoliums is our senior economics writer. And that is because mortgages often track very closely the rate on government debt. So for example, American mortgages, the 30-and-mortgage closely tracks the interest rate on 10-year US treasuries. So this is a big question at the moment and one that's received a little attention so far. So before we get into that, give me a snapshot now of what the housing market tends to look like broadly. So in about 2021-22, there was a big jump in interest rates and borrowing costs across the economy. And that was because central banks wanted to try and quell inflation, which had surged after the pandemic. And there were lots of worries at the time that it was going to cause the global

3:06housing market to slump or even to crash because mortgages were getting more expensive. In fact, that didn't really happen at all, even adjusting for the pretty high inflation of recent years. House prices across the rich world are barely off their all-time peak. And in many countries, they are in fact at their all-time peak in real terms. And so in other words, the housing market really escaped the worst of the interest rate rise. So that's the general case everywhere, the housing markets are voice to risk and healthy? Yes, so this is what's happening on average. And there are places that have been looking exceptionally strong. Australia is one place. Australia's real house prices are slightly higher than their post-pandemic peak, although there has been a bit of a slowdown in recent months. If you look somewhere like San Francisco, people there are talking about a mansion shortage. If you go to the fanciest neighborhoods in San Francisco, prices there have risen by about 20% over the past year. And there were places that a few years ago looked really in trouble, but have really come roaring

4:06back in recent years. There's no better example than Portugal, where over the past roughly decade to 15 years, real house prices have increased by about 200%. So there's some really, really healthy markets or unaffordable markets, depending on your perspective. But then there are other places like New Zealand and Germany where real house prices have come down quite substantially, although again, perhaps not as much as some people have feared. But whatever the market looks like, wherever you are, you're nervous about coming interest rate rises. So this is what's going on now. And yes, a growing number of investors are worried about the impact of higher rates on the housing market. So for example, if you look at American housing related companies, they have massively underperformed the wider stock market in recent months. In Australia, house builders shares have slumped in recent weeks, and it's true in lots of different places. And so really the punchline here is that the housing market today is more vulnerable to higher rates than it was in 2021. And there are three factors explaining this. One is to do with mortgages.

5:11The second is to do with household finances. And the third is to do with housing supply. Okay, let's take those as always one by one. Tell me about the case of mortgages. Okay, so on mortgages, when the last rate rise shock happened in 2021, households were unusually well insulated. And what I mean by that is that lots of people had fixed their mortgages at very low rates, often for a very long time. So in the US, lots of people refinanced during the pandemic into loans that were fixed at just 3% for 30 years. But in places like Australia, lots of people took out fixed rate loans. It was true in Britain as well. But now it's a bit of a different story. The data is not great, but from what we can see, there are lots more variable rate loans that people have taken out. And so what that means is the higher borrowing costs are going to feed into people's mortgage payments much more quickly. So it's true, for example, in Australia, it seems particularly true in Canada, somewhat

6:11true in the UK as well. There's a slightly more subtle points going on here too, which is that even those households that have decided to fix their mortgage are typically doing so for less time than before. So perhaps the best example here is Canada where you do still have a bunch of people taking out fixed rate mortgages, but people are tending to fix for one to two years rather than say four to five years. And so what that means is that people are a bit more vulnerable than they were to higher interest rates. And you said all of this was more volatile also because of household finances. What do you mean there? If you cast a reminder back to 2021-2022, at that time, people on average were sitting on actually quite substantial savings that they had accumulated during the pandemic. In 2020, people couldn't go out to eat, couldn't go on holidays, so they had less to spend on. And also particularly in places like the US and Japan and Canada, the government had sent out actually quite a lot of money in the form of economic stimulus. And so you could see that by about 2022 households across the rich world were sitting on about five trillion

7:16dollars worth of these so-called excess savings. And so when interest rates went up in 2021-2022-2023, people could use that cushion to cope with higher costs. The trouble is today that those excess savings have been spent. They had probably been spent in the US by about 2024, so about two years ago. And so what that means now is that there's just less of a buffer. And then also you said there's an issue with housing supply this time around. What's that about? So when rates went up last time in 2021-2022, this had come after a period of really exceptionally low rates of housing construction. During the 2010s, there really was very, very little housing construction by historical standards. And so what that meant was that like if you wanted to buy a home in 2021-2022, you really just didn't have much supply. And so you just kind of had to pay up. And so that kept house prices reasonably elevated even though mortgage rates were going up. What's happened

8:17over recent years there is actually housing construction is not high by historical standards, but it's actually held up pretty well. And so you do now have a decent amount of housing supply coming to the market. So for example, in the US in the past five years, the US has put up about seven million homes in the five years to 2022. It was about six million homes. So there's just a bit more housing supply going on. And that is likely to weigh on prices somewhat. So during the pandemic, you in particular were kind of out of consensus and suggesting, don't worry about the housing market. It sounds like because of the way things have shifted, that the tone is a little different this time. There are real worries. Yeah, so there were actually pretty apocalyptic forecasts for the housing market when rates started to go up in 2022 in particular. And our coverage back then said, the housing boom has probably come to an end, but really do not expect house prices to come down very much because households are pretty well protected from higher rates. But what we're saying here is that the situation has actually

9:20quite meaningfully changed. So we're not making a forecast about what's going to happen to government bond yields, but we are saying that if interest rates continue to rise, then actually the housing market is pretty vulnerable. Calum always a pleasure. Thanks for your time. Thanks very much Jason. This economist podcast is sponsored by script, the knowledge platform with more than 350 million documents shared by real people. Whatever you're working on, script is where you go to find information, build understanding and get it done. And if you're a student or educator in the US, a valid school email address gets you a discounted subscription plan. Head to script.com to claim yours. That's s c r i b d dot com must be 18 or over.

10:21With no fees or minimums on checking accounts, it's no wonder the capital one bank guy is so passionate about banking with capital one. If he were here, he wouldn't just tell you about no fees or minimums. He'd also talk about how most capital one cafes are open seven days a week to assist with your banking needs. Yep, even on weekends, it's pretty much all he talks about in a good way. What's in your wallet? Terms apply. See capital one dot com slash bank capital one N.A member FDIC. I think the ban itself was extremely underwhelming. There was honestly no point. It hasn't really affected anybody. It's been almost nine months since Australia became the first country in the world to ban under 16th from having social media accounts. Josh Spencer is an Asia news editor for the economist. I wanted to check in with people in the country to see how the

11:22ban was playing out on the ground. There was a lot expected to happen, but nothing really happened. I expected to be banned knowing that I was three weeks off, but nothing happened. She just put a like up some makeup on and looked older than what she was. Hi! This is how it was and she got in. I think that more than stopping them, it's making people want to do it more. What I kept hearing from the teens and the parents that I spoke to was that really not much has changed. The ban has had very little impact and most teenagers and young people are still using the same social media platforms that they were using before the ban. Now this matters not only to Australia, but to the rest of the world. Because since Australia introduced its ban, dozens of other countries seem to have followed it by implementing or considering implementing similar bans. Because of a conviction that these social media sites are bad for kids basically. Essentially, yeah, policymakers are worried that social media might be

12:27causing them harm to their mental health or exposing them to harmful content or content they shouldn't be seeing at a young age. But policymakers also know that these sorts of bans are really popular. So adults seem to support them in general. An example of that was last month when meta agreed to change its products for under 18s in most American states after settling a lawsuit that alleged its platform's harm youngsters. And the massive celebration of reaction to that, I think illustrated how popular restricting social media is. Now we spoke about this at the beginning of the year, a month into the ban and it was sort of unclear then whether it had worked. I guess we have much more of an idea now that it hasn't. We definitely have more data now than we did earlier in the year. It's still early and the government will argue that the real impact of this ban will be measured in years and not months. They hope to create a culture shift around social media. And they have been able to tell some successes. Number of social media platforms have said that they've removed restricted or deactivated

13:29lots of accounts. But so far I think the early studies have shown that Australia's policy has mostly been ineffective and it hasn't really had much of an impact on how much young people use social media. The most rigorous study so far was in the British medical journal in June. And that found three months after the restrictions were introduced. About 85% of under 16s said they still used the same platforms. And when you look at time spent 12 and 13 year olds spent about the same amount of time on social media post ban as they did before the ban. One of the big worries about these bands was that it would push children off platforms like YouTube or X or Facebook into less well known platforms that might have even lower safety standards or were less well regulated. But that hasn't really been proven to be the case largely because most kids just remain on these existing platforms. Well, why? Why hasn't the ban worked as intended? Well, there's lots of theories for that Jason. One of the underrated things is that young Aussies themselves quite keen to stay

14:34online. The kids know how to outsmart the system. Some told me that because they're not meant to be on the platform that's actually motivated them to think of clever ways to stay on them. There's various get-arounds such as creating joint accounts with friends. But honestly, most of the teens I spoke to said they didn't have to try too hard. Some just put in a fake age, just said they were 18 even if they were 15 and they could create an account. Others have just used their parents' details or their siblings' details. Another reason some people argue is that tech firms aren't enforcing the rules well enough. That's certainly what the government in Australia is arguing. And it's trying to beef up the rules in attempt to make them comply with them more. So it's doubling the fines on the offending firms and it's hoping to give its regulator powers to make social media firms hand over data on internal usage, which should give them a better idea of whether or not this is working and whether teens are actually staying off. And then the final reason that people have put forward as to why this isn't working is that the technology meant to enforce the ban isn't really

15:38fit for purpose. The Australian ban was meant to be enforced primarily through this age assurance software, which includes things like facial scans to estimate someone's age, as well as AI to analyze the posts that someone puts online to see whether they might be younger than 16. But in reality, these things aren't massively accurate, for example, in distinguishing between a 15-year-old and a 16-year-old. So what's to be done? What is a better way to do this if you wanted to? Well, there is one other main way that countries have looked to, which is using people's real IDs when they sign up to social media. And that's what Malaysia has done. And Malaysia is one of only a few countries that have actually implemented a similar ban to Australia, not just talked about it. There was a thinking that this would be much more effective and much more accurate. But upon speaking to people in Malaysia, things actually aren't going to plan their either. That seems to be partly because platforms are worried about the risks of storing personal IDs on systems that could be hacked, subject to requests from government that raises all sorts of privacy concerns. So

16:43even this method doesn't seem to be an easy way out. It's funny that we've made it this far in the conversation and not mentioned the platforms themselves. What are they doing in all of this? Yeah, so obviously they are removing accounts in all of these countries that have introduced bands and they've published those figures. They're also starting to make broader changes to their own sites or platforms, sometimes because of pressure from outsiders. So for example, meta after settling this lawsuit that we mentioned earlier with most American states is introducing several safety limits on its apps in those places. And there's hopes that meta's going to roll those features out elsewhere and that other firms are going to follow it in doing similar things. But generally one of the criticisms of bands like Australia is that they kind of let platforms get away with not making their sites safer young people because they can say, well, the young people are not meant to be on these platforms anyway. And that has seen some changes in some countries that have observed what's happened in Australia. So for example, Canada is planning to introduce a

17:45band under 16s having social media accounts, but only until these meet a set of safety criteria. So that sort of incentivises platforms to actually make changes rather than letting them get away with it to some extent. And in all of this, I think people sometimes forget to ask what young people actually think. And from the young people I spoke to actually said that they felt they knew more about how to be safe from lines and adults often and that the bands weren't necessarily going to be a massive help to them. Josh, thanks very much for your time. Thanks so much Jason. Music Arts can make sense of suffering, metabolising it into meaning, even entertainment, but it usually takes longer than this. Andrew Miller writes backstory our column on culture.

18:47Lesson three years after October 7th 2023, Fowlder, a hit Israeli spy show, has brought that day's atrocities and their emotional fallout to the screen. Music It's latest series illustrates the role of stories in coping with anguish. It also suggests the kinds of truths that fiction can impart, sometimes more powerfully than the news, and those it can't. Music Since 2015, Fowlder has followed a group of Israeli commandos who venture undercover into Gaza in the West Bank. The wrong the main character is played by Leo Raz, one of the shows creators and a real life veteran of a similar unit. He sometimes seems to carry all of Israel's burdens on his tense manly shoulders. Whenever he thinks he's out, he's dragged back into a mayhem

19:54of abductions, bombings, portrayals, rogue fighters, manhunts, and dusty shootouts. In its first four seasons, Fowlder made an effort to be fair. The Palestinian characters, like the Israelis, had griefs and grievances, families and team frictions. In fact, the plot only works because the two sides look alike. The Israeli agents are mostly played by Mizrahi Jews of Middle East in descent. Fowlder, which means chaos, is a code word used when a mission goes awry, but it also seems a full-on judgement on the whole intractable conflict. The new fifth season is different. Two years after October the 7th, a pair of bereaved fathers pursue a freelance of endetta against terrorist sheltering in Marseille. Before long, Doron must go undercover again,

20:56this time in a training camp in Syria. Now, though, his adversaries seem less nuanced. We're not human beings to you, complains of Palestinian, shortly before he's outed as a complete monster. The Europeans, who sympathize with his cause, are drawn with equal scorn. Is this narrowing of empathy, a storytelling failure, vindicating those critics, who've always seen Fowlder as Zionist propaganda? I think not, because this series is not really about the rights and wrongs or wrongs and wrongs of the overarching Middle East and struggle. Any more than say, all quiet on the Western front adjudicates the causes of the First World War. Instead, this is a portrait of trauma. In the series, two episodes rewind to the carnage of October the 7th, in which Doron, his comrades and their families are caught up. These episodes are hard to watch, and after only three years, some viewers may feel queasy about watching this reenactment

22:03at all. Ladies and gentlemen, it's like we've run into a little bit of rush hour traffic this morning. Unfortunately, it's going to be about 30 minutes delay. By comparison, United 93, a film about one of the hijackings on September the 11th, 2001, came out after five years, which some Americans felt was too soon. In Israel, where the new series of Fowlder came out in May, the scenes it recreates of Pitalis Garnman and the horror in a besieged safe room are inescapably familiar. The haste, I think, is the point, because this is drama as witness and as a stage of grief. Superficially, the plot offers a sort of therapeutic consolation, in which Doron and the gang fend off another mega threat to Israel. But the major keys are rage and guilt, because for all their bravery, the heroes fail to rescue one of their numbers' wife and children. Afterwards,

23:08they are haunted and bereft. And rumbling through the dialogue is the wider failure of the state that day. You may well be thinking about the awful war in Gaza that followed October the 7th. Fowlder doesn't depict it, but if you want to understand how many Israelis have hardened their hearts to Gaza's torment, I think the show can help. And its popularity suggests that it is doing that, notably in the Arab world. It's been top of Netflix's chart in Lebanon and is rating highly in Jordan, Qatar and other Arab countries. Books, films and TV often reach people who skip the news or just distrust it. After all, soulful hunks and tough women with great hair tend to be more compelling than dry reports and political speeches. Still, the contrast between the forceful public diplomacy of Fowlder and Israel's flailing official

24:09diplomacy is stark. In the end, TV shows are not in cyclopedia entries. A high octane thriller is unlikely to convey all sides of a torturous history, even if it tries, with this one doesn't. To fully grasp the entwined agonies of Israel and the Palestinians, we need to turn to other sources and voices, including those more critical of Israeli abuses and more sympathetic to Palestinian pain. Fowlder isn't the whole truth, but he captures part of it. That's all for this episode of The Intelligence. We'll see you back here tomorrow.

25:11This intelligence podcast is sponsored by Business Travel on Hotels.com. Does booking business travel feel like another job? Hotels.com makes booking work trips easy and rewarding. It's easy because you can set your preferences once and get results tailored to your business travel needs every time. It's rewarding because with Hotels.com's free rewards program, you can save instantly on your next work trip and earn rewards for future travel. Look faster with confidence at Hotels.com, loyalty members 18 plus. With no fees or minimums on checking accounts, it's no wonder the Capital One bank guy is so passionate about banking with Capital One. If he were here, he wouldn't just tell you about no fees or minimums. He'd also talk about how most Capital One cafes are open seven days a week to assist with your banking needs. Yep, even on weekends, it's pretty much all he talks about in a good way. What's in your wallet?

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