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I thought Setser might back up the housing froth claim with some solid data, but nope. As Laurent pointed out, it's not easy to turn housing equity into quick credit in France and Spain, and, as I pointed out, Germany isn't involved in housing froth. And why would a "wealth effect" from a property boom that has been going on for some years only translate into higher consumer demand over the last 18 months?

So I'll go along with Metatone and say:

by afew (afew(a in a circle)eurotrib_dot_com) on Mon Aug 28th, 2006 at 04:33:38 PM EST
I've asked him:


"(spanish and french housing bubble) deflates. that will slow their growth,"  

I don't know about Spain, but I still don't see how the french housing buble deflating will have major effect: french cannot use their house as ATM, construction jobs are not as big as in the US, fixed rate loan are still the overwhelming majority and were taken in a very low fixed rate context (okay they're longer maturity than previous decades but that's about it).

I'd appreciate any insight you have on the french situation.

Thanks for this great post!

by Laurent GUERBY on Mon Aug 28th, 2006 at 05:36:15 PM EST
[ Parent ]
I didn't follow it closely, but wasn't some proposals from the UMP or the government making the round for allowing to use  house-equity for backing consumption loan?

Anyway, "quand le batîment va, tout va", and I believe it is a main reason why the growth in France or Spain is so positive. I'm not sure you can't call it a froth in France. The prices went up across the board. Plural of anecdotes is not datas, but people I know are quite frenetic about investing in houses with the low interest rates we had.

Maybe they feel the ECB won't allow it too long. One wonder why ;-)

La répartie est dans l'escalier. Elle revient de suite.

by lacordaire on Tue Aug 29th, 2006 at 05:45:44 AM EST
[ Parent ]
Yes the law is there since a few monthes ago but no commercial I know of yet.

There's no question that prices went up in a bubble fashion, just about what will happen to consumers and the economy when they go down or flat for a while.

by Laurent GUERBY on Tue Aug 29th, 2006 at 08:36:04 AM EST
[ Parent ]
And about precisely how rising property prices have fueled consumer demand only over the past 18 months...
by afew (afew(a in a circle)eurotrib_dot_com) on Tue Aug 29th, 2006 at 10:19:15 AM EST
[ Parent ]
Brad answered:


Laurent, I am not an expert on France, but Daniel Gros's work convinced me -- atm or not -- the wealth effect from rising housing prices seems well correlated with rising consumption/ domestic demand led growth and current account deficits in europe.

Now I have to look after more data :).

by Laurent GUERBY on Tue Aug 29th, 2006 at 01:48:44 PM EST
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