- US housing market data paint picture of recovery…
- …which should increasingly support economic growth
- Greece deal can be almost fully-financed by ESM programme
US housing market picking up momentum
Housing market data releases are painting an encouraging picture. The NAHB housing market index edged up to 61 in August from 60 the previous month. This took this indicator of homebuilder confidence to its highest level since November 2005.
The increase was driven by an improvement in current sales and prospective buyers in almost all regions of the country, except the Northeast region which had showed a solid print in the past two months. This supports our expectation for further improvement in the coming months.
Meanwhile, housing starts rose to a near eight-year high in July as builders ramped up construction. Housing starts increased 0.2%, which is very impressive following the 12.3% surge seen in June. Admittedly housing permits were much weaker (-16.3%) though, but that came on the back of three months of strong increases.
Housing matters for economic growth
US housing is getting support from the strong labour market, which is driving home demand. Furthermore, there is likely considerable pent up demand for housing. These factors should remain supportive in the coming months despite a likely gradual rise in mortgage rates on the back of moderate Fed rate hikes.
In turn, the recovery of the housing market will continue to have positive effects for the economy. Directly, the housing recovery will support construction and employment. In times of economic expansion, it is an important contributor to GDP growth. In addition, as home prices increase, households will see their wealth rise, which should lead them to spend more. A firm recovery in the housing market will likely help economic growth to remain at above trend rates in the coming quarters.
ESM to provide up to EUR 86bn for Greece
The ESM is set to take care of most of Greece’s financing needs over the next three years if necessary. This removes one of the key problems in previous proposals, where Greece would have had to rely to a large extent on a combination of the IMF, large asset sales and a return to markets to top up the ESM’s contribution.
A draft proposal leaked to the press, shows the ESM is planning to provide up to EUR 86bn for Greece. This would cover most of the EUR 94 bn financing needs of the programme according to the base line of the institutions. This is made up of EUR 25bn for bank re-capitalisation, EUR 54 bn to service loans and EUR 15bn to clear arrears and build cash buffers. The rest of the financing need will be made up from EUR 2bn from Greece running a primary surplus and EUR 6bn from privatization proceeds.
In previous proposals the ESM would have provided only EUR 50bn, which could have exposed Greece to a large financing gap in the future. The IMF could still participate in the financing of the programme (EUR 10 – 15bn), reducing the ESM contribution. That depends on an agreement on debt relief.