House Prices: The Short-Covering View

It’s pretty obvious that when a country’s population rises, demand for housing

goes up. If you’re a financial-market type like Paul McCulley

of Pimco, you can see the rise in demand as a short-covering

rally: "you are born short a roof over your head," he writes,

"and must cover, either by renting or buying".

I hasten to add that McCulley is by no means a housing-market bull, and that

he reckons that the recent rally in house prices is speculative, rather than

short-covering. But it makes me wonder why we’ve seen enormous house-price spikes

in places like Spain, where population growth is negative, and that in general

there seems to be almost no correlation between population growth and house-price


Part of this is because countries with fast-growing populations, like Mexico

and Brazil, also have supercharged construction sectors. The total value of

housing is going up, but that’s because the number of houses is going up, rather

than the price of houses.

The US is no outlier. It has moderately positive population growth; it has

also had a housing-price spike which while big in absolute terms is small by

the standards of other countries such as the UK and Ireland. The difference

can be explained, in part, by the fact that the US has had a massive construction


But I still like the idea of housing as short-covering, even if I’m not sure

how useful it is.

This entry was posted in housing. Bookmark the permalink.