Finance

Fictional money, a shot at inordinate riches and a good chance of landing in jail at some point. That, in a nutshell, is the popular board game of Monopoly. But it describes just as accurately the experience of those who have founded some of the world’s biggest cryptocurrency exchanges.On November 21st Changpeng Zhao, boss of Binance, resigned after pleading guilty to criminal money-laundering charges. He becomes the third founder of a major crypto exchange to be convicted of crimes. In May 2022 Arthur Hayes, who set up BitMEX, was sentenced to six months under house arrest for violating anti-money-laundering laws. And on November 2nd this year Sam Bankman-Fried, the founder of FTX, was convicted on seven counts of fraud. He may face decades in prison.Mr Zhao will pay a $50m fine. He may also go to jail—probably for up to 18 months—after he is sentenced in Seattle in February. In the meantime he has been released on a $175m bond. Binance also pleaded guilty to violating money-laundering laws and the International Emergency Economic Powers Act, the legislation under which America imposes sanctions. As part of the plea agreement, Binance will be allowed to continue operating under the supervision of a government team. It will also pay a $4.3bn fine. In a press conference Janet Yellen, the treasury secretary, called the enforcement action “historic”. It is the largest such settlement the Treasury has ever been paid.The indictment, which was unsealed on November 21st, does not allege that Mr Zhao intentionally set up a platform by which criminals or individuals under sanctions could evade scrutiny. Instead, it says that he put his relentless pursuit of market share, growth and profits ahead of all else.There are all kinds of people with whom the law forbids financial institutions from doing business. This means they must carry out a reasonable amount of vetting of potential clients. Yet between 2017 and 2021 most of Binance’s users could sign up with just an email address. Letting everyone trade freely probably helped Binance create a deep, liquid market—the most useful sort for customers—and thus build market share. But allowing Americans to swap bitcoin with anonymous accounts linked to Iranian phone numbers will get you into trouble.There are countless examples in the indictment showing Binance either did not care about these kinds of problems, or thought that existing financial rules might not apply to the novel crypto business. But there are also instances of deliberate rulebreaking. Binance’s compliance team at times identified users who appeared to be using the platform for illicit activity, like moving funds from Hydra, a Russian dark-web marketplace. They were told, before banning such users, to check their “VIP” status, a designation for high-value accounts. VIPs were then told they could open a new account. “Let him know to be careful with his flow of funds,” a former Binance executive said about the dark-web user; “He can come back with a new account…but this current one has to go, it’s tainted.”Mr Zhao and other Binance executives discussed blocking accounts with IP addresses, or internet location markers, from Iran or North Korea. They seem to have done little more than talk. The indictment claims that 12,500 users with Iranian phone numbers were active on Binance in 2019. Some 7,000 customers provided identity documents from countries under sanctions. In the end Binance processed almost $1bn-worth of trades between American and Iranian accounts.“Binance became the world’s largest cryptocurrency exchange in part because of the crimes it committed,” said Merrick Garland, the attorney-general, at the press conference announcing the exchange’s plea agreement. Ms Yellen said Binance’s failures allowed money to flow to cybercriminals, child-abusers and terrorists—including Hamas, al-Qaeda and Islamic State.Eventually, the exchange did attempt to clean up its act. It put full “know-your-customer” procedures into place in 2021, and by May 2022 users could not trade unless they had uploaded identification documents first. As crypto regulation has been written around the world, Binance has applied for licences to operate a fully regulated and compliant exchange. Speaking to The Economist in October, Mr Zhao called Binance “the most licensed crypto firm in the world”. But it is clearly too little too late for Mr Zhao, who will probably be barred from future roles in financial institutions.In a long post on X (formerly Twitter) Mr Zhao said he had “made mistakes’‘ and “must take responsibility”. He announced that Richard Teng, a Singaporean career regulator, would replace him as Binance’s boss. Mr Zhao himself will now “take a break” having not had a “real (phone off) break for the last six and a half years”. But the length of that break may not be entirely up to him. ■ More

Goldman Sachs paid professional golfer Patrick Cantlay more than $1 million annually for the past four years in a sponsorship deal linked to the bank’s consumer-banking efforts.
A deal signed by Cantlay in 2020 included a minimum of $1.1 million annually, plus performance bonuses for PGA Tour and Major victories.
A Goldman spokesman declined to comment on the financial aspects of the sponsorship, as did a representative for Cantlay.

Patrick Cantlay of the United States plays his shot from the 18th tee during the final round of the Workday Charity Open on July 12, 2020 at Muirfield Village Golf Club in Dublin, Ohio.
Sam Greenwood | Getty Images

Goldman Sachs paid professional golfer Patrick Cantlay more than $1 million annually in a sponsorship deal linked to the bank’s consumer-banking efforts, CNBC has learned.
A three-year deal signed by Cantlay in 2020 included a minimum of $1.1 million annually, according to people with knowledge of the contract, with performance bonuses for PGA Tour and Major victories and hitting top rankings worth potentially far more.

Goldman opted not to renew Cantlay’s sponsorship this year in the latest example of the bank’s retrenchment from its retail banking push. After CEO David Solomon capitulated to demands to end the money-losing effort, the bank shut down a personal loan unit, shelved a planned checking account and sold off businesses.
Cantlay initially wore a cap emblazoned with the bank’s short-lived Marcus brand. That was replaced by the Goldman Sachs name after the bank’s president, John Waldron, said to be a fan of the sport, pushed for the change, said one of the people, who declined to be identified speaking about sponsorship deals.  
The first Cantlay deal was considered a relatively modest sum for a Top-10 ranked PGA golfer, mostly because his brand was still rising when he was signed, according to one of the people.
He got paid significantly more when Goldman renewed his sponsorship in a one year extension earlier in 2023, this person said. Cantlay has earned more than $42 million in official competitions since turning pro in 2012, according to the PGA Tour.
Goldman spokesman Tony Fratto declined to comment on the financial aspects of the sponsorship, as did Cantlay’s representative Molly Levinson.

“We constantly evaluate the firm’s partnerships, and at this time, our logo will no longer appear on his hat,” Fratto told The New York Times, which first reported that Goldman wasn’t renewing Cantlay.  
Cantlay still appears on Goldman’s website as a brand ambassador, along with LGPA golfer Nelly Korda and McLaren’s Formula 1 racing team. More

“The scammers fraudulently claim to represent our Shenzhen office and solicit money from individuals on the premise of paying them back with commissions,” Temasek said.
“This is a scam and is not associated with Temasek in any way. Temasek does not directly sell any investment products or financial instruments in China. We have not authorized any third party to do so on our behalf,” the Singapore investment company added.
The Singapore state investor has three offices in mainland China in Beijing, Shanghai and Shenzhen.

An undated photo of a signage at Singapore state investor Temasek Holdings’ headquarters in the Southeast Asian city-state.
Bryan van der Beek | Bloomberg | Getty Images

Singapore’s Temasek Holdings warned that scammers are allegedly trying to sell financial investment products or instruments to unsuspecting individuals while posing as agents of the firm’s office in Shenzhen, China.
“We have been alerted to a scam in China that involves the impersonation of Temasek in Shenzhen, using our registered office name ‘Temasek Holdings Advisors (Shenzhen) Co., Ltd.’ / ‘淡马锡投资咨询 (深圳) 有限公司’,” Temasek said in a statement Wednesday.

With a net portfolio value of 382 billion Singapore dollars ($284.5 billion) as of March 31, Temasek Holdings is one of two Singapore state-owned investment companies, along with the more traditional sovereign wealth fund GIC. It is an active investor and shareholder with three offices in mainland China in Beijing, Shanghai and Shenzhen. Temasek maintains a total of 13 offices in nine countries outside of Singapore.
“The scammers fraudulently claim to represent our Shenzhen office and solicit money from individuals on the premise of paying them back with commissions,” Temasek said.
“This is a scam and is not associated with Temasek in any way. Temasek does not directly sell any investment products or financial instruments in China. We have not authorized any third party to do so on our behalf,” the Singapore investment company added.
“We reserve all rights to pursue legal action and remedies against any person or company that impersonates Temasek and/or infringes our intellectual property,” Temasek said.
From fake Apple and Ikea stores and knock-off Disneylands to counterfeit milk powder, medicine and food, China struggles with counterfeits which have in recent years led to adverse health effects or swindled victims out of huge sums of money.
Chinese state news agency Xinhua reported Tuesday that Myanmar has transferred a total of 31,000 suspects to Chinese authorities to date in a crackdown on phone fraud originating from northern Myanmar that targeted mainland Chinese. More

Biden and Xi met for the first time in about a year in San Francisco on the sidelines of the Asia-Pacific Economic Cooperation conference.
“I think for U.S. businesses the hope is that this kind of new tone can translate into a new normal for the economic relationship,” said Jake Colvin, president of the Washington, D.C.-based National Foreign Trade Council.
“For the business community, the meeting demonstrates that full decoupling is off the table and that investment in China remains permissible, at least in non-sensitive industries,” Gabriel Wildau, managing director at Teneo, said in a note Friday.

U.S. President Joe Biden and Chinese President Xi Jinping at Filoli estate on the sidelines of the Asia-Pacific Economic Cooperation summit in Woodside, California, on Nov. 15, 2023.
Kevin Lamarque | Reuters

BEIJING — U.S. President Joe Biden’s meeting with Chinese President Xi Jinping last week has set a bottom line in the relationship which reduces uncertainty for businesses, analysts said.
Biden and Xi met for the first time in about a year in San Francisco on the sidelines of the Asia-Pacific Economic Cooperation conference.

“I think there’s a lot of consensus coming out of this summit,” Wang Dong, executive director of the Institute for Global Cooperation and Understanding at Peking University, told reporters Tuesday.
“What you get from this summit is a very clear signal the two countries, they are committed to what we can call decouple in a way, on the basis of reciprocity and mutual respect,” he said. “I think this is very important for both countries and indeed for the global economy as well.”
In essence, the U.S. and China are working out what it means to cooperate where they can.

“I think for U.S. businesses the hope is that this kind of new tone can translate into a new normal for the economic relationship, where there’s a mutually beneficial relationship where China plays by the rules and the United States and China can get back to a more normal economic footing, have some of these tariffs and retaliations drop away,” said Jake Colvin, president of the Washington, D.C.-based National Foreign Trade Council.
He said he participated in the Asia-Pacific Economic Cooperation CEO Summit in San Francisco last week.

In conversations with Xi, Biden did not budge on export controls, enacted out of national security concerns. But a White House readout said “the leaders affirmed the need to address the risks of advanced AI systems and improve AI safety through U.S.-China government talks.”
The two sides also agreed to restore military-to-military talks, which have been on a hiatus for more than a year.
“For the business community, the meeting demonstrates that full decoupling is off the table and that investment in China remains permissible, at least in non-sensitive industries,” Gabriel Wildau, managing director at Teneo, said in a note Friday.
“The meeting signals that both leaders want to avoid a downward spiral and cooperate where interests align,” he said.
The Biden administration has sought to restrict U.S. investment in, or business with, Chinese companies that are developing advanced tech that could support military development. But U.S. officials have pointed out the vast majority of trade and consumer-related business isn’t affected.

Top-down messaging

As with U.S. official visits to China this year, the Biden-Xi meeting spurred action, such as the resumption of more flights between the two countries.
For the first time since the Covid-19 pandemic, a direct flight headed for Washington, D.C., took off from Beijing on Tuesday, state media reported.
“I heard stories from dozens of decisionmakers telling me their versions of how their personal experiences with Chinese interlocutors had suddenly changed: promises of imminent licenses long thought dead, clarity on anti-espionage rulings, higher-level access to Chinese decisionmakers, favorable treatment by the Chinese media, and the like,” Ian Bremmer, president of consulting firm Eurasia Group, said in a note Monday.
Mastercard on Monday announced its joint venture in China received approval from the People’s Bank of China to begin processing domestic payments. The venture waited nearly four years since its application to begin preparations was approved in principle.

Wedding versus marriage

After meeting Biden, Xi spoke at a dinner with top U.S. business executives in which he said the fundamental question was whether the two countries are “adversaries or partners.”
“I was very heartened by the fact that there were so many companies that were invested in the U.S. and China having a positive relationship,” said Blueshirt Group managing director, Gary Dvorchak, who attended the dinner.
“In a negative U.S.-China environment a lot of those companies could have stayed away. Why do I want my CEO having a picture with Xi Jinping?” he said. “It would have been very easy for the whole thing to be massively negative and not have people show up.”
Looking further out, Dvorchak compared the dinner to a wedding. “The happy day is a happy day. How is the marriage?”

Upcoming election risk

Over the weekend, Eurasia Group said it’s more likely now that the U.S. and China will see a “managed decline” in their relationship through the end of 2024, and a lower likelihood of “serious deterioration.”
But the consulting firm sees zero chance of a “substantial improvement.”
The U.S. presidential election is scheduled for November 2024. The democratically self-ruled island of Taiwan is due to hold its elections in January.
Beijing considers Taiwan part of its territory, with no right to independently conduct diplomatic relations. The U.S. recognizes Beijing as the sole government of China but maintains unofficial relations with Taiwan.
“Whether this positive atmosphere can last very long is in doubt with [the] coming next year’s presidential election,” said Jin Canrong, deputy dean, professor and doctoral supervisor of the School of International Studies at the Renmin University of China.
He described the Biden-Xi summit as “very good,” with some consensus, but noted that in the long term, managing the relationship is “a very hard job.”
From a long-term point of view, there’s some doubt within the Chinese public about how the consensus achieved can be implemented, “because our impression is that the record of the U.S. side [fulfilling] their promise is very bad. They promise every day but do nothing,” Jin told reporters Tuesday.” He is also deputy director of the Center for American Studies at the Renmin University of China, and holds other positions.

No ‘splashy deliverables’

Long-standing issues for U.S. business operations in China remain, and deals aren’t made overnight.
Despite media reports saying the Chinese government might use the Biden-Xi summit as an opportunity to announce a commitment to resuming purchases of Boeing’s 737 Max aircraft, no such news has materialized. Boeing did not immediately respond to CNBC’s request for comment.

Read more about China from CNBC Pro

“This meeting didn’t result in any splashy deliverables,” Colvin said. “It was successful in putting a floor under the relationship and setting a new tone for cooperation and for problem solving.”
“But I think for companies there’s still going to be a focus on derisking and diversifying supply chains,” he said. “Ultimately they will make their decisions based on the reality on the ground in China.” More

Warren Buffett, chairman and CEO of Berkshire Hathaway, smiles as he plays bridge following the annual Berkshire Hathaway shareholders meeting in Omaha, Nebraska, May 5, 2019.
Nati Harnik | AP

Warren Buffett donated more than $870 million in Berkshire Hathaway stock to four family foundations before Thanksgiving, assuring investors in a letter that the conglomerate is “built to last.”
The 93-year-old legendary investor donated 1.5 million Class B shares of his conglomerate to the Susan Thompson Buffett Foundation, named for his first wife. He also gave 300,000 Class B shares to each of the three foundations run by his children: the Sherwood Foundation, the Howard G. Buffett Foundation and the NoVo Foundation.

“They supplement certain of the lifetime pledges I made in 2006 and that continue until my death (at 93, I feel good but fully realize I am playing in extra innings),” Buffett said in a statement.
He made similar donations on Thanksgiving eve last year. The “Oracle of Omaha” pledged to give away the fortune he built at Berkshire, the Omaha-based conglomerate he started running since 1965. Buffett has been making annual donations to the same four charities since 2006.
Berkshire owns a vast array of well-established businesses, ranging from its crown-jewel Geico insurance to BNSF Railway to about 6% of Apple.
Shares of the conglomerate have gained nearly 17% this year after hitting an all-time high in September.
Berkshire is built to last
In his letter, the longtime investing icon affirmed to Berkshire shareholders that the empire he has cultivated over the past six decades will stand the test of time, even without his oversight.

“In the short-term, Berkshire’s distinctive characteristics and behavior will be supported by my large Berkshire holdings. Before long, however, Berkshire will earn whatever reputation it then deserves,” Buffett said. “Decay can occur at all types of large institutions, whether governmental, philanthropic or profit-seeking. But it is not inevitable. Berkshire’s advantage is that it has been built to last.”
Greg Abel, vice chairman for non-insurance operations at Berkshire, has been named Buffett’s successor. Buffett has sung Abel’s praises, noting that he’s taken on most of the responsibilities.
Buffett’s three children are the executors of his will and the named trustees of the charitable trust that will receive nearly all of Buffett’s wealth.
“My children, along with their father, have a common belief that dynastic wealth, though both legal and common in much of the world including the United States, is not desirable,” Buffett said. “Moreover, we have had many opportunities to observe that being rich does not make you either wise or evil.” More

Binance founder and CEO Changpeng Zhao pleads guilty to felony charges Tuesday related to his failure to prevent money laundering on the crypto exchange platform.
King 5 News Seattle

Former Binance CEO Changpeng Zhao on Tuesday named a new CEO of the cryptocurrency exchange he founded, after pleading guilty to federal money laundering charges and stepping down as the company’s chief.
Zhao named Richard Teng, a former CEO of Abu Dhabi Global Market, the UAE capital’s financial services regulator, as Binance’s new CEO. Teng was most recently global head of regional markets at Binance. He was also previously director of corporate finance at the Monetary Authority of Singapore.

In a post on X, Zhao said he “must take responsibility,” and that it was “not easy to let go emotionally.” The controversial crypto entrepreneur, who was accused of violating the U.S. Bank Secrecy Act and sanctions violations, added that he was “proud to point out” U.S. agencies did not allege Binance had misappropriated user funds or market manipulation.
The case against Binance, which was unsealed on Tuesday afternoon, shows that the exchange faces three criminal charges, including conducting an unlicensed money-transmitting business, violating the International Emergency Economic Powers Act, as well as a conspiracy charge. The exchange has agreed to $4.3 billion in fines and forfeiture.
The former Binance chief will personally plead guilty to violating and causing a financial institution to violate the Bank Secrecy Act, according to the plea agreement. The DOJ is also recommending that the court impose a $50 million fine on Zhao.
The settlement comes just after FTX founder Sam Bankman-Fried was found guilty of several criminal counts of fraud and conspiracy following just three hours of deliberation by the jury. For a high-profile monthlong trial that involved nearly 20 witnesses and hundreds of exhibits, experts told CNBC they’d never seen such a speedy decision.
“I can’t see myself being a CEO driving a startup again. I am content being an one-shot (lucky) entrepreneur,” Zhao said. “Should there be listeners, I may be open to being a coach/mentor to a small number of upcoming entrepreneurs, privately. If for nothing else, I can at least tell them what not to do.”

Zhao described Teng as a “highly qualified leader” and added that “with over three decades of financial services and regulatory experience, he will navigate the company through its next period of growth.”
“With CZ, and our leadership team’s support, I have accepted this role so that we can continue to meet and exceed the expectations of stakeholders while achieving our core mission, the freedom of money,” Teng said in a post on X Tuesday afternoon. Teng added that his focus will be on three key areas: including “reassuring users that they can remain confident in the financial strength, security and safety of the company;” “collaborating with regulators to uphold high standards globally that foster innovation while providing important consumer protections;” and “working with partners to drive growth and adoption of Web3.”
“He will ensure Binance delivers on our next phase of security, transparency, compliance, and growth,” Zhao added.
The remarks mark the first public comments made by Zhao after he agreed to a plea deal with the U.S. Department of Justice earlier Tuesday.
Zhao appeared before Judge Brian Tsuchida for a hearing in a Seattle courtroom at 10:00 a.m. Pacific Time (1:00 p.m. ET). More

Federal Reserve officials at their most recent meeting expressed little appetite for cutting interest rates anytime soon, particularly as inflation remains well above their goal, according to minutes released Tuesday. 
The summary of the meeting, held Oct. 31-Nov. 1, showed that Federal Open Market Committee members still worry that inflation could be stubborn or move higher, and that more may need to be done.

At the least, they said policy will need to stay “restrictive” until data shows inflation on a convincing trek back to the central bank’s 2% goal.
“In discussing the policy outlook, participants continued to judge that it was critical that the stance of monetary policy be kept sufficiently restrictive to return inflation to the Committee’s 2 percent objective over time,” the minutes said.
Along with that, however, the minutes showed that members believe they can move “proceed carefully” and make decisions “on the totality of incoming information and its implications for the economic outlook as well as the balance of risks.”
The release comes amid overwhelming sentiment on Wall Street that the Fed is done hiking.
Traders in the fed funds futures market are indicating virtually no probability that policymakers will increase rates again this cycle, and in fact are pricing in cuts starting in May. Ultimately, the market expects that the Fed will enact the equivalent of four quarter percentage point cuts before the end of 2024.

No mention of cuts

However, the minutes gave no indication that members even discussed when they might start lowering rates, which was reflected in Chairman Jerome Powell’s post-meeting news conference.
“The fact is, the Committee is not thinking about rate cuts right now at all,” Powell said then.
The fed’s benchmark funds rate, which sets short-term borrowing costs, is currently targeted in a range between 5.25%-5.5%, the highest level in 22 years.
The meeting occurred amid market worries over rising Treasury yields, a topic that appeared to generate substantial discussion during the meeting. The same day, Nov. 1, when the Fed released its post-meeting statement, the Treasury Department announced its borrowing needs over the next few months, which actually were a bit smaller than markets had anticipated.

Stock chart icon

10-year Treasury yield, 3 months

Since the meeting, yields have receded off 16-year highs as markets digest the impact of heavy debt-fueled borrowing from the government and views over where the Fed is headed with rates.
Officials concluded that the rise in yields had been fueled by rising “term premiums,” or the extra yield investors demanded to hold longer-term securities. The minutes noted that policymakers viewed the rising term premium as a product of greater supply as the government finances its huge budget deficits. Other issues included the Fed’s stance on monetary policy and views on inflation and growth.
“However, they also noted that, whatever the source of the rise in longer-term yields, persistent changes in financial conditions could have implications for the path of monetary policy and that it would therefore be important to continue to monitor market developments closely,” the minutes said.

Economic growth to slow

In other business, officials said they expect economic growth in the fourth quarter to “slow markedly” from the 4.9% increase in Q3 gross domestic product. They said that risks to broader economic growth are probably skewed to the downside, while risks to inflation are to the upside.
As for current policy, members said it “was restrictive and was putting downward pressure on economic activity and inflation,” the minutes said.
Public remarks from Fed officials have been split between those who think the central bank can hold here while it weighs the impact that its previous 11 hikes, totaling 5.25 percentage points, have had on the economy, and those who believe more increases are warranted.
Economic data also has been split, though generally favorable for inflation trends.
The Fed’s key inflation indicator, the personal consumption expenditures price index, showed core inflation running at a 3.7% 12-month pace in September. The number has improved considerably, dropping a full percentage point since May, but is still well above the Fed’s target.
Some economists think getting inflation down from here could be tricky, particularly with wage increases running strong and more stubborn components such as rent and medical care elevated. Indeed, so-called sticky prices rose 4.9% over the past year, according to an Atlanta Fed gauge.
On employment, perhaps the most critical factor in getting inflation lower, the jobs market is strong though moderating. Nonfarm payrolls increased by 150,000 in October, one of the slowest months of the recovery, though the unemployment rate has climbed to 3.9%. The half percentage point increase of the jobless rate, if it persists, is commonly associated with recessions.
Economic growth, after a robust first three quarters in 2023, is expected to slow considerably. The Atlanta Fed’s GDPNow tracker is pointing to growth of 2% in the fourth quarter.
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In parts of San Francisco, the housing market is in dire straits. Consider the example of one swish apartment close to City Hall, with quartz countertops and a rooftop deck, which in 2019 sold for $1.25m. Not today. After the chaos of the covid-19 pandemic, City Hall now overlooks the locus of the city’s drug problems. Biblical scenes of lawlessness and human suffering play out every night. The flat is now listed for $769,000—and is yet to sell.Away from its troubled districts, though, San Francisco’s housing market is once again robust. Prices have risen by 3% from a trough reached earlier this year. Property in swankier parts of town fetches well above asking price. In nearby San Jose, in Silicon Valley, house prices are up by 8% from the trough. The story is similar across the rich world: pockets of weakness, but surprising overall strength.image: The EconomistFigures from the Dallas branch of the Federal Reserve suggest that global house prices rose by 1.3% between the first and second quarters of 2023. Estimates for more recent months point to a further rise (see chart). In cash terms this puts them in line with the previous peak reached in 2022. Adjusted for inflation, they have fallen by less than 5%. That pales in comparison with the 13% peak-to-trough decline which followed the financial crisis of 2007-09, and which also lasted a lot longer.Even in places where the housing market went bananas during the pandemic, leading people to expect a crash, prices are now higher than many had feared. In Britain, a house-price index produced by Halifax, a building society, rose by 1.1% in October, defying economists’ expectations for a 0.4% monthly drop (though the number of transactions is unusually low). Data from Zillow, a housing website, indicate that American house prices are nearly 2% higher than a year ago. A recent survey by Bloomberg, a financial-data firm, suggests that Australian house prices may rise by 7.7% this year.All this has taken most economists by surprise. Since the start of 2022 the rich world’s central banks have raised interest rates by an average of five percentage points. Economists thought house prices would crash as buyers’ purchasing power declined, mortgagors struggled to repay their debts and the economy slowed.Three factors, however, explain why housing markets have so far brushed off higher rates. The first is a shift in preferences. The pandemic seems to have made people more hermit-like: they work from home more and spend relatively more time on home entertainment than on going out. People thus place a higher value on their living space, raising demand for housing. This arrests price declines.The second factor is a changed mortgage market. In some countries, such as America and Denmark, it has long been common to borrow on fixed rates, allowing people to insulate themselves from central-bank rate rises. In the years before 2022 households in other countries shifted in the same direction. Between 2011 and 2021 the share of mortgages in EU countries on variable rates fell from nearly 40% to less than 15% (although some of the rest are fixed for only a few years). The effect has been to delay the impact of rate rises. Since 2021, the average mortgage rate across the rich world has only risen by half as much as the average central-bank policy rate.Household finances also make rising interest costs more manageable—the third factor supporting house prices. Following the property crisis that began in 2007, many governments introduced tougher regulations, shutting out less creditworthy borrowers. Richer folk find it easier to weather higher interest bills. In addition, many borrowers are still sitting on large “excess savings” accumulated during the pandemic, which they can use to make their repayments. The latest estimates suggest that, in the average rich country outside America, these savings still amount to 14% of yearly disposable income.Could housing-market pain merely be delayed? Mortgages with short-term fixes will soon expire. Households will then need to refinance, possibly at the high rates of today; if inflation remains sticky, central bankers may need to raise rates even further. Excess savings will run out eventually, and a rise in unemployment, linked to a weak economy, would also imperil some homeowners. But for now, the rich world is a long way from City Hall. ■ More