Much to the chagrin of hopeful first-time buyers, property prices remain stubbornly high across the West. Our correspondent explains why housing is defying the laws of financial gravity. A new diamond deal in Botswana risks jeopardizing the country’s sparkling record. And why a failed crop of peaches will not cripple America’s Peach State.
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While many African economies have been crippled by the resource curse, Botswana has stood out as a rare success story thanks to its diamond industry.

Now, in light of a new deal, the country's glowing reputation risks losing its sparkle.

And there's no greater association between an American state and a fruit than the case of the Georgia peach.

We look into how that association came about and why a dearth of the fruit isn't as critical as you might think.

Yet another interest rate rise is expected here in Britain this week.

And as elsewhere, it's starting to sound like a broken record, with the cost of borrowing rising.

Let's talk about the Bank of England expected to increase interest rates again today for the third time in a row.

The Bank of England increased interest rates today again.

It was the 12th consecutive increase made by the bank as it tries to curb inflation.

It's a story playing out in much of the developed world.

Inflation is out of control and policymakers keep reaching for the easiest lever to pull, making money more expensive.

Like everything in economics though, borrowing costs are connected to many other parts of the economy, namely house prices.

This week, the average rate on a two-year fixed mortgage in Britain exceeded

For homeowners, that's hundreds more pounds every month than in pre-pandemic times.

And those costs also get passed on to renters.

The connections should go further, crippling the market for houses too.

So in 2022, interest rates across the world were rising fast, and the economy was slowing.

Callum Williams is our Senior Economics writer.

And as a result, economists were expecting a bit of a house price bloodbath.

But recent data show that that is not really materializing and house prices are much stronger than people had expected.

So paint us a picture then, what's going on that wasn't expected?

So inflation has been resurgent over the past couple of years and as a result central banks across the world have raised interest rates by about 3 percentage points on average and have done so very quickly.

It makes mortgages more costly, and it also slows the economy.

And when those 2 things happen, what tends to happen is that you get a downturn in the property market.

And that's what people were expecting, given that house prices had risen very dramatically during the Covid pandemic and they were about 40% higher by 2022 than they had been 5 years before.

But actually what's happened is yes, there has been clear slowing in house price growth.

In lots of places house prices have come down a bit but in lots of countries they're now starting to grow again and they remain significantly above their 2019 levels in real terms.

And even in the places which have done particularly badly over the past couple of years, things aren't actually that bad.

So San Francisco being a perfect example, yes, house prices are roughly a tenth off their peak in nominal terms, but the average house still costs well over a million dollars, about 10 times the local salary.

But you say it's something of a mixed picture, there are winners and losers here.

Yeah, as always, there are winners and losers, but the kind of winners are winning less and the losers are losing less.

So for example, if we go back to the financial crisis and look at somewhere like Ireland, after the financial crisis Irish house prices fell by half.

We've not seen anything nearly as bad this time.

So 1 place that people were particularly concerned about is Australia, where house price growth was totally bananas in 2020 and

House prices have come down by about 7% which is not nothing but it's not particularly dramatic.

But now for the past kind of 234 months there's been pretty clear evidence that house prices are recovering.

I think the other thing to bear in mind is that people were worried that a house price correction was going to have implications for the financial sector, just like in the financial crisis of 2008 where banks really struggled as bad mortgages came due.

That doesn't really appear to be at all what's happening this time around.

Banks don't seem to be worried about a surge in bad mortgages.

They haven't loaded up on dodgy subprime securities like they did in the 2000s.

And there's really no evidence at all that delinquencies or defaults or foreclosures are rising.

So again, if you look at the kind of potentially most vulnerable places, in New Zealand mortgage arrears have gone up a bit, but they still remain actually lower than they were before the pandemic.

And then look at Canada, where mortgage arrears are pretty much close to an all-time low.

So there's really no evidence of wider contagion so far.

So apart from reforms to the mortgage lending side of things, there is a bigger picture here that doesn't match historical expectations.

So yeah, I think there's basically 3 things that are really important and very different from last time around that explain why house prices have been so resilient.

The first 1 is to do actually with migration.

Net migration to the rich world is actually at all-time highs at the moment.

It's bounced back very dramatically from the pandemic.

So for example in Australia it's roughly twice the pre-pandemic level.

And actually what's happening is that demand from the new arrivals is really supporting the market.

So there is some research on this and it suggests that for every 100, 000 net migrants to Australia house prices go up by about 1%.

Current net migration to Australia is about 500, 000 people a year.

So that's a pretty significant effect actually.

Wage growth has been pretty strong in nominal terms over the past year, so that supports house prices and rents.

And the other kind of important thing to bear in mind is who has entered the mortgage market in recent years.

And it's been, even by historical standards, disproportionately wealthier households that have clambered onto the mortgage ladder.

That's largely a result of post-financial crisis mortgage market regulation.

And the reason that's important is because when mortgage rates go up, wealthier households find that easier to absorb.

They can kind of afford to pay a few hundred or even a few thousand extra pounds a month or dollars a month in a way that a poor household certainly couldn't.

Of course the other important thing is that a lot of people during the pandemic accumulated pretty massive savings basically because they weren't able to like go on holiday, they weren't able to spend money going out with friends, and that's provided another cushion to higher mortgage payments.

So you said there were 3 factors here, migration is 1, household finances another, what's the third?

So the third 1 is in a sense the most speculative, but it's also the most interesting, to do with shifting preferences for housing.

So when the pandemic came, a lot of people really started to kind of value their house more.

They needed to be at home more and they wanted more from their home.

So for example, they wanted a home office, whereas before they might not have really been bothered about having a home office.

They might have been keen on having a garden because they were spending more time at home and so they want to spend time outdoors.

There is some research from the Bank of England which suggests that those changing preferences explain roughly half of the increase in British house prices during the pandemic.

And what it kind of means essentially is even if the macro economy kind of turns against homeowners, they're just kind of much keener on holding onto their home than they were before.

So they're kind of willing to put up with more pain than they might have been in the past because they really really want to keep that home office, they really really really want to keep that big garden.

So that's another reason really to explain why potentially house prices have been so resilient.

But is there not a chance here that a house price correction is just slow to come?

Could this just be the calm before the storm?

There are places like the UK where mortgage rates have gone up, in some cases quite dramatically, as financial markets are worried about inflation.

I think if you were going to make that argument strongly, I think you'd need to point to falling construction employment.

Falling construction employment is often the kind of canary in the coal mine for wider problems in the housing market.

you could see a falling number of builders as pretty strong evidence that the housing market was entering a really bad time, long before the economy was in recession, long before we had all of the failure of Lehman Brothers and all that kind of thing.

This time around you're really not seeing that.

So even in places like New Zealand, yes there is less demand for builders than there was a few months ago, but there's still really, really high demand for builders.

So it's just not clear at the moment that we're going to have this lagged effect.

And so kind of all things considered, the housing boom is definitely over.

But at least for now, there's not much sign of a housing bust.

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few weeks ago, I visited a diamond processing centre in Botswana.

As you can imagine, getting into a building full of diamonds isn't easy.

And they take security very seriously there.

John McDiarmid is The Economist's chief Africa correspondent.

But once I got through, I reached a new facility in Gaborone, the capital, 1 that's run by a youngish company called HB Antwerp, a company that the Botswana government says it wants to take a stake in.

I was shown around by a young lady called Judy, 1 of several Botswana employees.

She was keen to point out a lot of the high-tech kit that HB Antwerp has there.

And what does it look like when you first receive it?

So I'm looking at something that isn't that kind of pure, transparent.

She showed me what happens once HB receives rough stones from the mine and how they go about cutting them, polishing them, and eventually moving them on to a jewelry maker.

The reason I went to the HP office is because it symbolizes how Botswana, already a big player in the diamond industry, wants to be an even bigger 1.

Botswana is very important to the global diamond industry.

It's the second largest producer after Russia.

But the relationship between Botswana and diamonds isn't just important for the current market, it's also an important and sadly all-too-rare story of how an African government has managed its natural resources well for the broader good of its people.

In 1966, when Botswana emerged from independence from Britain, it had pretty grim fortunes.

It was 1 of the poorest countries on the planet.

Fast forward to today, and it's just about the richest African country on the continental mainland.

Having lots of diamonds is a great place to start.

In partnership with De Beers, the mining giant that has long been synonymous with diamonds.

It has avoided many of the problems that other countries that had big resource windfalls have experienced.

It's avoided industrial white elephants and instead ploughed money into good education systems, hospitals, clinics and pretty decent infrastructure.

So diamonds are a big deal in Botswana and Botswana is a big deal in diamonds.

Okay, but if everything's going so well, then why would anyone want to change that?

Well Botswana or more specifically, Mokwetse Mesisi, Botswana's president, reckons that while the long-standing relationship with the De Beers has been a success, his country still gets a raw deal.

Mesisi might say that, it helps to appreciate that there's not just 1 simple agreement between Botswana and the De Beers, but a series of overlapping ones that govern the mining of the stones, the sorting of the stones, the selling of the stones, and to complicate matters further, the Botswana government also owns 15% of the beers.

Part of this, of course, is just negotiating.

He is trying to up the stakes on his side.

There's also some electioneering going on.

But if you listen to some of the things that Mr.

Massisi has been saying recently, whether at industry events or at ruling Botswana Democratic Party rallies, it's pretty clear that he is pushing negotiations with De Beers harder than any of his predecessors have.

And as a deadline to strike a deal approaches on June 30th, industry observers are getting rather nervous.

Massisi says the country wants a better deal, what exactly does he mean?

1 is that he wants better terms on the current arrangements.

Specifically he wants a higher share of the stones that are dug out of Botswana pits to be sold by the Botswana state-owned diamond trading company.

At the moment it gets 25% of the stones that come out of Debswana, which is the joint mining venture.

He probably wants that number to go up, as you would in his position.

But there's also a second thing going on which is that Mr.

Macisi like a lot of African politicians sees his country as still having this basic economic model involving the logging of raw commodities.

In his case it's rough diamond stones and he wants to see his country getting more value out of that, having more of the so-called downstream parts of the value chain, the sorting of the diamonds, the cutting of the diamonds, potentially even jewellery making done in his own country.

Macisi said that his government would take a 24% stake in this small, young company precisely to try to extract more value from the diamond value chain for Botswana, because this young firm says that it will do more of the cutting and polishing of Botswana stones in the country.

That sounds great, But at the same time, the purported deal has also raised a few eyebrows in Gaborone and beyond.

The biggest concern is over transparency.

We don't know how much the deal is going to cost.

And frankly, we're not even 100 percent sure that the deal is going to go through and we certainly don't know when that might happen.

De Beers for the record is also keen to point out that HB Antwerp is not the only show in town and that it has encouraged more of the stones it sorts and sells to go to manufacturers that are already in Gaborone.

But I think the broader issue is that it has startled a lot of outsiders who are familiar with Botswana as an exemplar of good and steady governance.

It seems more of a bold and risky step than they're used to.

Now that might signal an admirable determination to change the status quo but it might also suggest a step in the wrong direction.

Why might this be a step in the wrong direction?

Well, there are a few signs that under both Mr.

Macisi and his predecessor Ian Carmer, Botswana isn't the clear African success story that it perhaps once was.

Macisi, for instance, has shown some worrying protectionist instincts, banning some imports from South Africa and limiting foreign ownership of business.

Western diplomats, for their part, worry that a tie-up with HB Antwerp might bring Mr.

Macisi closer to Felix Tshikedi, a Congolese president who is close with 1 of HB's co-founders.

Ultimately, Botswana is still a much more stable, much more democratic, a much more prosperous African country than the norm.

But that reputation was hard won and it can be easily lost.

So John, where does this leave the future of Botswana's diamond industry?

I think it would be surprising if Botswana and Dibea's didn't make a deal in the end.

On the Botswana side, it's unclear whether any other miner would give them better terms.

On the Dibea side, Botswana is their largest source of supply and pretty much indispensable.

But I think what this saga shows is that African governments are increasingly keen to try to get more out of their raw commodities.

The only issue in Botswana's case is that to command the premium that it wants from the diamonds it sells, it has to be careful to keep the sparkle in its own brand.

First job in that packing house with my grandfather and picking peaches, packing peaches.

I'm Robert Dickey, owner of Dickey Farms, along with my son and wife and family.

Peach farm mainly, it's been going for 125 years right here.

Love it right here in this little rural Muzela, Georgia.

Let's see, we should be picking these peaches right now.

These trees should have 6, 700 peaches on them.

So the trees are completely bare, basically.

Robert Dickey lost nearly his whole crop of peaches this year.

This year, things are looking pretty bleak for peach farmers in Georgia.

Rebecca Jackson is our Southern Correspondent.

of the state's peach crop was destroyed by a freeze early this spring.

The last time farmers lost an entire crop was in

So why has it been such a bad year for peach farmers?

An unusually balmy winter meant that peach trees blossomed early this year.

Then 2 March frosts came in and killed all the flowers.

That meant that there weren't gonna be any peaches.

The 3 orchards in middle Georgia that grow 95% of the state's peaches typically ship more than 150 million peaches to grocery stores.

This summer, the trees are totally bare, and no commercial trucks are being packed at all.

It turns out that the peach is a pretty fussy plant to begin with.

In order to bear fruit, the trees need at least 600 chill hours, where the temperature drops below 45 degrees in the winter.

But the winter averages in Georgia have been climbing.

And since 2016, those really crisp nights are really difficult to come by.

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