Wednesday, May 31, 2017

Home ownership and trade

There appears to be a negative correlation between the home ownership rate and the current account balance for advanced economies. Below is a chart showing the data.

Here is the same data plotted in a way that makes the correlation more obvious.

I have a couple of theories about why these two variables are linked.  Countries with high home ownership rates may have policies that make it easy to get mortgages and other forms of consumer credit. This leads to strong demand for savings which tend to drive capital inflows and associated trade deficits.

Another theory is that home ownership reduces the need for cash savings in bank accounts. People who own houses never have to pay rents and they don't have to worry about inflation in housing costs.  Less bank saving is offset by capital inflows and associated trade deficits.