Home economics: housing markets’ future

In 1946, CARE delivered the world's first care packages to Europeans devastated and hungry from 6 years of war. 80 years later, this spirit lives on. The fisherman who saved his neighbours during a cyclone. The woman who guided her colleague through a firefight to safety. The girl who challenged the elders who told her she couldn't play soccer. Yet the question lingers: Who cares? You do. And so do we. Join us at care.org/whocares.

Hello and welcome to The Intelligence from The Economist. I'm your host, Jason Palmer. Every weekday, we provide a fresh perspective on the events shaping your world. A curious thing happened with a recent academic review of studies on mask wearing. Both mask advocates and skeptics saw in it proof for their positions. The unfortunate truth is that there are not enough good data to make a case either way. And a production of the classic musical Guys and Dolls in London reveals what live entertainment will need to do as viewers, listeners, and foot tappers move online. It'll have to make the absolute most of its liveness. First up though, in their bids to tame inflation by raising interest rates, central bankers across the rich world have managed to slow down their local housing markets.

Activity's come down significantly and prices have come down as well. It's important to remember they've come down off— We have done a lot on rates already.

The full effect of that is still to come through.

Housing starts come down, activity in housing has declined.

Home prices have dropped from their pandemic highs, But at the same time, mortgages have become pricier thanks to those higher interest rates. Inflation does seem to be slowing in lots of rich countries. So central bankers in places like Britain and America are starting to ease off the accelerator. How that will translate into the housing sector though, isn't obvious.

Smaller rate increases by central banks have left a lot of people wondering if the long-feared housing crunch will turn out to be less terrible than expected.

Vingeru Mukandawire is our global property correspondent.

But that optimism may be unwarranted.

We've seen that central banks in particular in America, in England, have slowed the rate of interest rate rises. Is that a sign to your mind that the worst of the housing crisis is behind us?

Well, it's still bad. Recent data shows that home prices in America fell in January for the 7th straight month. They actually rose in Australia, but that followed 10 months of decline. At the moment, markets in America and Britain are pricing in at least one more interest rate increase. So there are reasons to be cautious about housing. If we take a look at what's happened so far, the OECD says that central bank interventions have absolutely stunted home price growth. Prices are down 14% from their peaks in Sweden and New Zealand, and they're down in Australia by around 9%. It's worth noting that these are all countries that rolled out earlier or sharper interest rate increases than other countries, so they've been hit much harder. Goldman Sachs predicts even further drops in prices in those countries. So it's possible that the worst is behind us in these markets, but it's certainly not over for the rest of the world.

So what is it about those countries that prompted the earlier action on the part of central banks?

Countries like Australia, Canada, Sweden, and New Zealand were among the most overheated markets during the pandemic. They were the focus of some of the biggest swings in house prices globally, and they also have really high levels of household debt compared with a lot of other countries. Most of it is due to large mortgage loans. So unsurprisingly, they now face some of the most pronounced corrections in house prices.

So I note in the countries you've mentioned, you haven't mentioned America. What has stopped prices from falling even further in countries like America?

In America, homeowners are largely insulated by fixed-rate mortgages, which often last for 2 or 3 decades. Regulators have pushed borrowers in the direction of such loans since the subprime lending crisis that began in 2007. These loans are less likely to experience the level of mass defaults that blew up the financial system in the previous crisis. According to Goldman Sachs, prices in America are forecast to fall by around 5% from their peak. Homeowners in Britain have also been insulated, but only to an extent. In Britain, the majority of mortgage borrowers are also on fixed loans, but nearly half of those are fixed for no more than 2 years. That means more than 3 million households will move to new terms this year and will see their monthly repayments go up as a result. I'd also say that huge savings buffers have helped homeowners, but as time goes by, these large stockpiles of cash that were amassed during lockdowns have been drawn down, so they no longer provide as much protection.

So what about the, the other side of this equation? How are home builders dealing with all of this?

A lot of builders are understandably nervous. Many are holding off on developing new homes. Some are dangling cash to incentivize buyers. Persimmon, which is Britain's second biggest builder, even offered to pay mortgages for up to 10 months at the start of this year. That was an attempt to prop up demand in the market. It's a similar situation in other parts of Europe. For example, the German Property Federation, that's an industry group, predicts that just 245,000 apartments will be finished in Germany this year. That falls well short of the government's target of building 400,000 new homes.

So even as house prices fall, the mortgages in a lot of places are going to still be unaffordable for a lot of people. What does that mean for those who haven't yet got onto, can't get onto the property ladder?

Well, it's not good news. First of all, rents have gone up in most places. And for those looking to buy a house or a flat, falling prices do very little for affordability. Because higher interest rates have made servicing a mortgage so much more expensive. This means people can't afford to borrow as much as they used to, and potential buyers are facing higher bills for homes that are now worth less. Take Canada. The Royal Bank of Canada says that the average buyer looking to purchase a detached home now needs to spend nearly 70% of their pre-tax household income on mortgage payments, property taxes, and utility bills. That's up from 46% of household income 3 years ago. So despite prices falling, homes aren't any cheaper to buy, and there's likely more pain to come.

Vincero, thank you very much for your time.

Thanks for having me, Jason.

In 1946, CARE delivered the world's first care packages to Europeans devastated and hungry from 6 years of war. 80 years later, this spirit lives on. The fisherman who saved his neighbors during a cyclone. The woman who guided her colleague through a firefight to safety. The girl who challenged the elders who told her she couldn't play soccer. Yet the question lingers: Who cares? You do, and so do we. Join us at care.org/whocares.

A conservative columnist in America stirred a whole a hornet's nest recently by questioning how much masks help stop the spread of respiratory disease.

The issue of mask effectiveness has reared its head once again, this time courtesy of a New York Times opinion piece that was based on a new study. Bret Stephens said fresh research from Oxford University that is proving to be controversial, or perhaps it's his conclusions from it that are controversial as well.

Mr. Stephens said that fresh research suggested mask-wearing guidance did does nothing to stop the spread of COVID But he's not the only one quoting that study. And his isn't the only conclusion that people are drawing from it.

In January, the UK-based nonprofit Cochrane published a study on mask-wearing guidance. The main finding of the study was that they could not find any evidence one way or the other that guidance to wear masks was effective at preventing the spread of disease.

Ainsley Johnston is a data journalist at The Economist.

So you'd think that this would be a major blow for those in favor of mandates. But what's odd is that the study is being used both by skeptics, but also by proponents of mask mandates. Both groups are saying that the study proves them right.

Well, that doesn't stack up like this paper has one conclusion or the other that are mutually exclusive, right? So what exactly is this study? What does it say?

This study is what's called a meta-analysis, and that means basically a study of studies. What they've done is they've found lots of different studies on mask-wearing guidance and looked at their results in sum. But a meta-analysis is only as good as the studies that go into it. And the problem is that there just aren't really a lot of good studies on what we think of as mask mandates. So even Cochrane couldn't reach a definitive conclusion. Hence them saying that there wasn't enough evidence to prove the effectiveness.

So it's a study of not very many studies is the issue here. I mean, what, what data are available here?

So Cochrane looked specifically at randomized controlled trials, and they're considered the best way to prove causality. So they were specifically looking at trials where they took a group of people and they randomized them to either be told to wear masks or to act normally. And then the researchers looked at the number of COVID cases and looked at whether these outcomes differed. So the authors of the review found 10 studies looking at the impact of mask guidance on the spread of viruses. 8 of these were actually from pre-COVID time, and we're looking at the spread of flu. Of those 8, 5 of the studies were specifically looking at the spread of disease within households. In these studies, they recruited people who had the virus already and looked at how the virus spread within members of their household and split these households into groups who were either told to wear masks or those who were told to act as normal. None of these studies found that guidance to wear masks was effective at preventing other household members from getting ill. As you can imagine, this is not particularly similar to like mask mandates that we experienced during COVID where people were mainly wearing masks outside of the house, and the idea was to try and reduce the spread between households rather than within.

Were there any that were more like mandates as we knew them?

So there were two studies that took place during COVID One took place in Denmark. It was a trial of 5,000 Danish people who were split into either being instructed to wear a mask or not. The problem is that the people who were recruited for this study were living amongst the general population, most of whom at the time were not wearing masks. So what that meant was, even for people who were asked to wear masks, although they could get some benefit from wearing the mask themselves, they were not offered the protection that comes from other people who they were surrounded by also wearing masks.

So yeah, the point for mask wearing is not so much to protect yourself as to protect everybody else, and therefore data taken when that's not what's going on are kind of not very useful.

What about the other study that went on during COVID The other study took place in Bangladesh and was a study of 340,000 people. The authors randomly assigned whole villages to either receive guidance to wear masks or to be a control group. And what that meant was that people who were asked to wear masks tended to be clustered together. The study found that COVID symptoms were 11.6% rarer in mask-wearing villages than in control ones, and the share of people with COVID antibodies was 9% lower. One thing to bear in mind about all of these studies, though, is that mask wearing tended to be very low. Even though people were instructed to wear masks, and even in the case of the Bangladesh study, given cash incentives to wear them, mask wearing tended to be below 50%.

So of all the data that are out there, that sounds like the closest thing we've got to an actual set of, of data that the likes of which Cochrane would pursue. But I guess my question is, if there is that paucity of data, why has Cochrane weighed in at all on this?

The Cochrane meta-analysis is known as the gold standard for combining studies about medical interventions. But I think the problem is that in most cases, these are looking at things like drugs, where studies are easier to do and there are less ethical issues surrounding actually doing them. With health interventions like masking, generally public health experts wanted to implement the policies that could save the most number of lives, and at the time, testing their effectiveness was sort of a secondary concern.

Where does that leave the debate on masks?

Groups like the WHO and Cochrane also say that for public health interventions like mask wearing, oftentimes randomised control trials are just not possible, feasible, or ethical. and so in that case, you need to look to other sources of evidence too. Other studies have looked at so-called natural experiments, where researchers will take different places that, say, implemented mask mandates at different times, or had different levels of adherence to mandates, and will look for variation between these places in the rates of COVID or other illnesses. One thing that we know from many of these studies is that places that implemented mask mandates tended to have fewer cases than places that did not. And for a lot of public health experts, their minds have not really been changed by this review. And so if another pandemic was to happen again in the future, the guidance, I think, would likely still be the same.

Thanks very much for your time, Ainslie.

Thank you, Jason.

A couple of weeks ago, I went to see a revival at the Bridge Theatre in London of the classic Broadway musical Guys and Dolls.

Andrew Miller is The Economist's culture editor.

It's a big 1950s musical by Frank Lesser, and listeners will probably best know it from the movie, which was also made in the 1950s, starring Marlon Brando, Frank Sinatra, Gene Simmons, and other famous names. And it's a story about gamblers and hustlers and their attempts to find, or in some cases to hold on to, love, set against the backdrop of New York's seedy, but in this case essentially harmless, underworld in the mid-20th century. And the show in London featured all the classic numbers that you kind of know without realizing you did, such as Luck Be a Lady. And there are slightly less well-known numbers like A Butcher and a Peck, which in this case was accompanied by startlingly dirty choreography. And of course there's the titular song, Guys and Dolls. But this performance of Guys and Dolls was a little bit different.

Different how?

Well, the director, Sir Nicholas Hytner, uses a kind of immersive staging. About a third of the audience, the people who buy the cheapest seats, stand on the floor of the auditorium, and platforms rise up from the floor in different shapes to form the stage in the middle of them. And neon lights and signs dangle from the ceiling, and fire hydrants appear to evoke different locations in Manhattan. And these spectators are called upon to be part of the show. They take leaflets from the Bible bashers in the story, and they share their drinks with gamblers. And meanwhile, ushers dressed as New York cops keep order. A star of the show, Cedric Neal, who plays one of the gamblers, Nicely-Nicely Johnson, leads a vocal group in the interval, serenading the audience. And he's back on stage in the second act to perform the evening's showstopper, "Sit Down, You're Rocking the Boat." <LYRICS>Sit down, you're rocking—</LYRICS> Now, theater is always a risky business. It's expensive to put on and it's expensive to go often. But this production adds another layer of risk because you don't know if the theatergoers involved are going to play ball.

So why take that risk then?

Well, Jason, theater's in a tough spot at the moment. The pandemic was ruinous for many theaters and production companies, and audiences in both London and New York still haven't recovered to their pre-pandemic levels. Then there's a question of changing tastes. I mean, these days live art is competing with Netflix and all kinds of other things for people's time, money, and attention. There's a lot of anxiety about whether younger people are going to sit through King Lear or even Guys and Dolls. And I think there's a sense that just like bricks-and-mortar retailers have to sell something on the high street that websites can't offer, so with theatre, if it's going to compete in this digital age, It's got to lean into what makes it really special. As Sir Nicholas put it to me, theater needs to double down on its liveness, the elements and the excitement that people can't get from a screen.

And so, for you, did this production of Guys and Dolls do that? Did it double down on its liveness?

Well, you know, Jason, it did. It helped that it had a fantastic cast and brilliant production values. And this immersive technique that has been used at The Bridge by Sir Nicholas in previous productions of A Midsummer Night's Dream and Julius Caesar really was terrific. And it's a good reminder that in the theater, the real magic happens not on the stage, but in the audience. This is a thing that people involved in theater have always known, all the way back to the origins of Greek drama in religious rituals, and of course Shakespeare. But it's an insight that's never been more important than it is today.

Andrew, thanks very much for your time.

Thanks for having me, Jason.

That's all for this episode of The Intelligence. If you're not a subscriber to The Economist, you really are missing out. But dive in with the deal we've got going on at the moment: a free 30-day digital subscription. Just go to economist.com/intelligenceoffer or click the link in the show notes. We'll see you back here tomorrow.

In 1946, CARE delivered the world's first care packages to Europeans devastated and hungry from 6 years of war. 80 years later, this spirit lives on. The fisherman who saved his neighbours during a cyclone. The woman who guided her colleague through a firefight to safety. The girl who challenged the elders who told her she couldn't play soccer. Yet the question lingers: Who cares? You do, and so do we. Join us at care.org/whocares.