‘Something Does Not Feel Right’ About Global Bubble
A check in on the global housing bubble. “A decline in real estate prices was recorded in Croatia last year in almost all districts as the decline reached as much as 50% in the city of Split. Speaking about real estate overpricing, Dubravko Ranilovic, president of the Real Estate Association said that sellers expect up to 25% higher prices than actually achieved.”
“The Central Bank reported last month that Irish residential mortgage lending continued to expand at a rapid pace in January. With the exception of AIB Bank, all Irish lenders are providing 100% mortgages and many also provide interest-only loans. In recent years, more than 75 per cent of Bank of Ireland investment customers have availed of the bank’s ten-year interest-only mortgage.”
“A report produced by Rossa White says that the frenzy in the Irish property market has intensified. But rents have only recently recovered after a three year period in which they were in decline. As a result, yields have been driven down to unprecedented depths. Something does not feel right.”
“White says that a line frequently trotted out by estate agents is that ‘buy-to-let investors are not worried about rental yield; they are in it for the long haul of capital appreciation.’ That is fundamentally unsound investment advice.”
“The Davy report says that the evidence refutes the theory that supply shortages are leading to rocketing prices in ‘desirable areas.’ If that was the case, residential rents would be rising rapidly, but they are not. Since April 2001, house prices are up 52% on average nationwide but rents are down 2%!”
“The report also says that the proposition that scarcity of land close to the city-centre makes residential property a low-risk investment is not supported by evidence from other countries. The same argument was made in Japan in the late 1980s. The fundamentals suggest that it will be an adjustment in prices, rather than rents, that will eventually bring valuations down to more realistic levels.”
“The Wrigleworth Consultancy hosted a debate yesterday on the future of house prices in the UK. Several leading economists were present, and, surely a first in a room full of economists, they more or less agreed that ‘there will be no real growth in house prices for the foreseeable future.’”
“Quebec’s housing affordability eroded in the fourth quarter of 2005 in the wake of rising mortgage rates, weaker income growth, and higher utility costs, according to the Housing Affordability Index report released today by RBC Economics. ‘Quebec’s housing market had already begun to cool last quarter,’ said Derek Holt, assistant chief economist, RBC.”
“Australia has become a nation of spendthrifts, as people now choose to save for a rainy day instead of going on spending sprees. Some of the spending softness was attributed to the continued threat of an interest-rate rise, falling housing prices and larger mortgages.”
“‘The slowdown that the RBNZ (Reserve Bank of New Zealand) wanted is now here, and in spade,’ economist Brendan O’Donovan said. O’Donovan said consumers were becoming more circumspect as the housing market goes sideways and employment growth slowed.”
“Iceland’s central bank will probably raise its main interest rate by half a percentage point tomorrow after the krona tumbled and a housing boom drove up inflation, a survey of economists shows. Soaring house prices have fueled consumer-price growth, which has surpassed the central bank’s target for two years. The central bank is ‘going to have to deliver the goods,’ said Lars Christensen, an economist at Danske Bank in Copenhagen. ‘If we don’t get 50 basis points, it will spark renewed pressure on the krona.’”
Except China and Japan, the whole world has over spent. It has never been so easy and cheap to borrow money and most people are already maxed out on what they can afford for housing. Paying 2 to 5 times rent for PITI is simply unacceptable. Just 10 years ago, I could find homes in NJ and SoCal that can be owned with positive cash flow. It’ll be that way again. PITI will drop below rents.
Germany???
Overspent on unification long ago and currently have too weak a labor market to do much more than just get by.
But I don’t believe one can say their housing is overvalued — it was deflating last time I checked…
depends a bit on where you look; it certainly has not appreciated over the last 10 years except for some tiny spots. If you believe official CPI numbers from the ECB one could say that home prices in Germany have been stable for many years.
Germany has an anti-flipper tax.
yes, Germany lacks many of the stupid incentives that some other EU countries like Netherlands have. The Germans have kept their mental sanity, while in most of Europe the housing mania has been raging for years.
A home in Germany is now 2-3x cheaper than exactly the same home in the Netherlands while the distance between these homes (near the border) can be less than 20 km. If you travel a little further the difference is even bigger.
And this gives another problem, because the Dutch of course get their 50% HMD, theire pro-flipper premiums, their government-guaranteed put options for home prices and all the other stupid stuff - even if they decide to live in Germany (but work or get welfare from Netherlands).
The Germans near the border are up for some hard times, unless they have lots of homes/land for sale of course …
so do people in the netherlands sell their homes and move across the border?
definitely! some small German towns have now more than 50% Dutch citizens … But of course, there are limits. Living more than 50 km from your work is not an attractive option for most people here (we are not used to US distances). From what I hear, most people who moved are very happy with their decision.
It happened with Belgium too about 7 years ago. Because of this, the Dutch housing bubble spread to the northwest part of Belgium (near the Dutch borders). There were lots of complaints from people in Belgium that they were ‘priced out’ by Dutch buyers.
Five years later a funny thing is happening: in some isolated regions in the southwest of the Netherlands (where incomes are very low), people are now complaining that the average citizen is priced out by wealthy home speculators from Belgium
The Chinese have GROSSLY overspent:
http://firstrung.co.uk/articles.asp?pageid=NEWS&articlekey=1372&cat=44-0-0
We’re talking about the larger national economy here. In that context, they’re savers. The fact that some individuals (or several individuals) overpaid for property doesn’t mean that the country as a whole overspends.
Millions overpaid. Most of the rest of the Chinese don’t save because they have no money and can’t save.
I heard a stat that the average Chinese citizen saves close to 30% of their income.
(I have no idea how accurate that is - just heard it on the radio a few weeks back. However it gels with my experiences with first-generation Chinese-Americans. Friends/neighbors who save like crazy except for their children’s education - then the pocketbooks open! :-))
Lou doesn’t usually post thoughtful ideas - check out his own “site.” He likes to state opinions as fact.
The self-same article he posted mentioned that only 2% of the population was involved in this particular mess. Chinese save. Japanese save. If you’ve every met any in great numbers, you’ll immediately notice the cultural difference. (Again, we’re talking AVERAGES, here Lou - don’t give me anecdotal statements to the contrary)
Oh, and he insults people using fairly poor English.
Cool! It’s easy to tell when I’m hitting a nerve when someone launches into a personal attack.
Many of those who overpaid for Chinese property will turn out to be the global version of California flippers. My neighbor five doors up the street occasionally takes trips to Beijing to buy commercial property on spec for his clientele, for instance (probably institutional investors, I am guessing…).
Any news on the Arabian housing bubble? I can tell you something does not feel right about their stock market. More on that Middle-East stock market crash in progress below. First I have a few warmup questions for those of our readers who have recently become enamored of the Peak Oil school of thinking:
1) Is Peak Oil plunging into Trough Oil?
2) Is the levee system around the developed-country economies’ stock markets sufficient to withstand a Category 5 Arabian sandstorm?
3) Will the oil bubble die in the sands of the Middle Eastern desert concurrently with the death of the housing bubble in the
Southwestern US desert?
——————————————————————-
Arab stockmarkets
Down in the dunes
Mar 16th 2006 | CAIRO
From The Economist print edition
http://tinyurl.com/hphpx
NO ONE has jumped out of a window, yet. But that may only be because windows have yet to be installed in the dozens of skyscrapers sprouting in the Arab Gulf, home to 22 of the world’s 50 tallest buildings under construction, 16 of those in Dubai alone. Share prices are a less visible—but equally good—index of a regional boom built on high oil prices. In the past five years, they have been heading the same way as the skyscrapers, rising ninefold. But now they are pointing in the opposite direction.
What started last month as a correction of inflated equity prices is looking more and more like an outright crash. Since the start of the year, Gulf stockmarkets have shed one-quarter of their value. The worst hit, the Dubai Financial Market, is down by half from last year’s high. And the bearish mood has spilled beyond the Gulf to Egypt, Jordan and Tunisia. Combined losses in Arab equity markets so far amount to some $250 billion, not much less than last year’s bumper revenues from oil exports. This week, as markets suffered record daily tumbles, some exchanges briefly halted trading amid panicked calls for government intervention.
The crunch was long predicted. Price-earnings (p/e) ratios zoomed last year to celestial heights on some exchanges. The Saudi Arabian market’s p/e ratio, for example, had reached more than triple the emerging-market average of around 13 before the fall began at the end of February. So hot was the market that an estimated 3m people, perhaps half the kingdom’s adult citizenry, had leapt in. Their interest was sparked not merely by a liquidity surge generated by windfall oil revenues, but also by liberalising economic policies, strong corporate performances, a gush of public share offerings and a general wariness of investing abroad in what is perceived to be a potentially hostile West.
Peak Oil.
Threads over for me. Nothing to see anymore. Get back to me when there’s a thread worth reading.
Three sentences specifically called out as speculation should not distract from the real data below. The Arab Gulf is crashing in a manner consistent with the recent peaking of the Erection Index. The world’s tallest buildings come before a fall no matter where they are built.
I’m going to watch this fireworks show with great interest, especially because of the potential repercussions for the reconstruction of Iraq and normalization of Iran. You can hide from it pretending that little bit in the earlier speculation makes the rest not matter if you want.
Weren’t the Petronas Towers going up as the Asian meltdown occured?
I asked three questions to stimulate discussion. Call them what you want, Mr. Cote, but please do not try to turn me into a straw man.
Peak oil has been around since 1855 and has been wrong every year since then. You are not stimulating discussion you are shutting it down. As seen below we stopped talking about housing and have started talking about the meaning of words and the relative intellectual accumen of various posters.
The housing bubble and the oil bubble are part of the same credit bubble. I am sorry you missed the point, and sparked the degeneration of this sub-thread into off-topic squabbling.
Robert and Lou are two cut from the same material. So self-righteous.
Speaking of self-righteous, you’re carrying around a mighty big chip on your shoulder.
Do you have some information on peak oil that says it’s not going to happen?
“Peak oil” nonsense aside, I think what we have seen in Dubai and other Gulf State areas is insane. It is undeniably a bubble, built on petro dollars and idiot speculators. Burj Dubai is a white elephant of massive proportions. The only reason Europeans and others are buying vacation condos there is because it’s what everyone else is doing and they think it is a good investment. If I was stinkin’ rich and I wanted a nice place TO LIVE, I’d pick a place like Tahiti or Hawaii or maybe a Swiss chalet. I would not pick a sweltering desert shithole that reaches 120 degrees every summer.
On the plus side, it’s always sunny at the beach.
/look on the bright side of life.
and you won’t have to deal with drug addicts, alcoholics, youth gangs, too scarcely dressed women and lots of other US problems (you know, zero tolerance policy there).
But then, in the middle of the Gulf Region might not be the smartest place to live for US citizens
now lets not characterize scarcely dressed women as a problem
not for me, but we sometimes get the impression that it can be a serious problem in some parts of the US …
Sounds like what Phoenix is becoming.
Peak oil ‘nonsense’ will affect in ways you cannot imagine, and sooner than you think. Your lifestyle will not be the same, even five years from now. I still don’t know why people who understand the housing bubble, the credit bubble, etc. cannot accept Peak Oil. As for the middle-eastern building boom, in part it does reflect the frantic desire to diversify from an oil-based economy. Dubai is largely finished as an oil producer.
Mabye because, as Robert Cote has kindly pointed out, this false Peak Oil theory has been revisited repeatedly for over 100 years and has always turned out to be a red herring, as the actual causal basis for high oil prices is a boom phase in the highly-cyclical energy business which yet again creates the fear that we are “running out of oil” (kind of has a familiar ring to it, as we are “running out of land” too). Of course, every time the herd believes we are running out of something, the hording instinct which leads to a speculative mania shifts into overdrive.
But maybe this time is different
Classic straw man. You’re better than that.
Peak Oil theory only goes back to Hubbert, much less than 100 years ago. He nailed the peak, too. I hate to go off-topic on this blog, but geology is not on your side GS. I wish Peak Oil wasn’t real so my lifestyle would be unaffected. Unfortunately, it is real.
I find it fascinating that both you & Robert so readily dismiss “Peak Oil”.
Yes, various idiots have cried wolf about various pending calamities for centuries. However, Hubbert put forth a scientifically sound prediction in ‘56 that was proven in ‘73(?) regarding “Peak US Oil”. Same basic logic applies to “Peak Oil” worldwide now, only Hubbert’s work is supported by a much wider (and more esteemed) group of geologists and petroleum professionals. The other side of the argument comes from highly suspect sources such as “economists” and politicians. How does Hubbert differ from, say, Shiller?
Yes, it may be a calamity; OTOH, new technology may yet save us. Either way, we can all acknowledge that the supply/demand ratio for existing energy sources is changing for the worse, and it’s going to affect us all. I believe that’s a topic as worthy of debate as any, especially since oil & natural gas directly affect housing (e.g., heating, commutes, etc.) too.
Come on… I expect better from you two!
Tj & the Bear: Well said. I’ve been looking at this subject for a bit (can’t claim to really have a good handle) but other than a large majority of geologists, I haven’t seen convincing evidence that peak oil is not on our horizon. Even the oil companies are claiming it’s going to happen . . . the dispute seems to be all about timing.
I would sure be claiming peak oil was going to happen if I were an oil company — kind of like a reinsurer saying there will be lots more Category 5 hurricanes in the next century. Convincing your customers to pay more for your product is always a good business move.
Actually, it isn’t. The oil companies are already fighting independent re-evaluations of their reserves because any downgrading will impact their stock prices.
It all comes down to Ghawar.
Actually, the oil companies are claiming there is 30 more years till the peak, and geologists say less than 5.
This may be a dupe because my message didn’t “take”. The Burj Dubai is one of the best symbols of the global bubble. Do any of these “investors” really plan to live in this vacation paradise where it reaches 120 degrees each summer? If I was rich and wanted a chunk of paradise I’d pick Tahiti or Hawaii or a Swiss chalet. A fly-blown shithole on the Persian Gulf is not that place. It’s like a RE craze in Death Valley.
1. Don’t understand your metaphor “trough oil”. ‘Peak’ refers to peak production levels from physical reserves, not price fluctuations.
2. Again with the metaphors. Who knows.
3. Somewhat, but high prices are also determined by estimates of risk and future supply instability, which will remain high.
When I say Peak Oil, I am talking about a bubble in prices; and conversely, Trough Oil refers to a valley in prices…
That explains a great deal.
As for the question: trough oil isn’t coming back ever. Don’t buy that GMC Suburban or F350 crew-cab just yet…
Why would you use a definition that nobody else uses? That’s like saying, “when I say ’slippery,’ I mean orange.”
Because I assume the intelligent readers here are willing to think outside the box.
A valley in prices? $67 per barrel today, and rising. Expect prices over $70 this summer, and $150 bbl in four years.
http://www.mcdep.com/meterreader.htm
I have asked before and never have gotten a reply. At what point does solar energy compete with a barrel of oil at what price? Are we getting closer?
Peak Oil is real– As demand exceeds supply, look out for $100/bbl this year per T. Boon Pickens. When Americans have to pay five bucks a gallon to fill a Hummer, big SUV or pickup twice a week it will kill the bubble.
It is posts like this which deepen my conviction that oil is headed for a hard crash along with housing (especially the LV variety…).
I agree with Getstucco on the Peak Oil hood wink.
What was the price of oil per barrel after the last housing
bust in 1991? After the last housing bust oil dropped to
something like $18-20/barrrel. The cheap fuel also aided in the recovery of the stock market and helped propel the DOW from 1994-1999.
I used to post here a lot about 8-10 months ago and I would posit that once the housing ATM goes bust so does China and then so does their demand for oil.
Scientists cannot even agree on the origins of oil (biogenic or abiogenic). It makes a very big difference on what the real origins of oil are.
The “peak oil” crowd are little more than cultists, and they get quite angry when you dismiss them. They pop their heads out of their shells when there is a pop in prices. When prices retreat, so do their heads.
LOL. Yah, same with those ‘housing bubble’ cultists. Freaks.
As demand exceeds supply, look for substitutes to become widely available. The only reason tar sands and oil shale (which contain more petroleum reserves than the Middle East) aren’t exploited is that they’re not economically viable below about $50/bbl. Once it’s clear that price levels lower than that are permanently a thing of the past, it will become rational to make the necessary investments to bring those reserves online.
There are other potential substitutes for geological petroleum that become economical at a higher price plateau, including biodiesel and thermal depolymerization. High prices act as a powerful signal to seek substitutes, which is why it’s exceedingly rare for any resource actually to run out. By the time it gets close to being exhausted, a resource is so expensive that substitutes have long since become economical.
Frankly, I say the sooner the Middle Eastern oil reservoirs run out, the better. The problem is that they are the world’s cheapest producers of oil. Any conservation efforts that actually succeed, have the result of reducing demand, which reduces the price, which causes the most expensive producers — North American deep wells, Alaskan wells, offshore wells — to cut production as the market price drops below their production costs. The result, perversely, is that American conservation efforts aimed at breaking our “addiction” to foreign oil, will only result in Middle Eastern oil garnering a greater market share.
First the high-priced backstops will be found and exploited; next they will become cheap due to technological improvements. At that point, those oil wells will become as valuable as yesterday’s buggy-whip factories.
Hardly anyone is saying that oil will physically run out anytime soon. What is running out, however, is the cheap, easy-to-extract, light/sweet crude which has been powering our oil-addicted economy for 100 years or so. What is being found now is hard-to-extract, heavy, sour crude (i.e., expensive refined product).
The world is currently consuming ~85M bbl/day, of which the U.S. consumes ~21M bbl/day, ~25% of the total. There is not enough nat. gas and water available to process more than 3M bbl/day of tar sands oil (i.e., heavy, poor-quality, costly crude) in Canada. The bottom line is that transport fuel alternatives such as ethanol are available, but will cost much more than abundant, light/sweet crude did. Therein lies the problem for an industrial economy built upon cheap, available oil. As energy costs skyrocket, the economy will decline and hyperinflation will rein.
…Then say goodbye to the housing bubble.
Getstucco, don’t knock buggy whips. They will be a growth industry in the second half of this century, thanks to Peak Oil.
I just joined a vanpool at work. I have a long commute so it saves me over $200/month in gas and wear and tear on my vehicle. The program is highly subsidized by my employer and the county. Lots of new riders and vans have formed since gas went over $2.00/gallon. Also, you don’t see too many new SUVs out there. Point is, people will change their habits.
After the Arab oil embargo in the 70s, oil consumption in the USA declined by 20%. We still use much more per capita than many developed nations. There is plenty of room to go on conservation alone. Big oil knows this so they won’t let the prices get to high. They will ruin their customer base!
Don’t believe Peak Oil? No problem. $5/gal gas is a matter of when, not if. Exploding consumption (yes, fuel consumption has exploded) shows no sign of waning. Demand is outstripping supply and the BEST thing that could happen is $5/gal. Will it be painful? For some. It can’t happen soon enough for me.
Peak Oil Tip:
1. Don’t buy a energy-hungry McMansion, SUV or FS pickup.
2. Do buy a hybrid or modern diesel car.
I’m not familiar with the peak oil specifics, but looking at increased industrialization in Asia, population growth and current trends in energy use, I don’t think the possibility of an energy crisis occurring in tandem with the bursting of the housing bubble and a declining economy can be called a red herring, even if the last time those promoting the idea were labeled fools.. The possibility is there that it will happen. We just don’t know.
http://tinyurl.com/sns7 (Population growth)
http://tinyurl.com/qxral (Oil use in the Asia Pacific region)
Hey Ben. Could you check this out from housingpanic?
“Anonymous said…
“here is something to laugh at (not)
“Fed props up economy with TONS of new cash
“According to Axis of Logic:
“Three separate sources in the U.S. Treasury have told me that this week, the federal reserve ordered TWO TRILLION dollars to be printed! The U.S. Treasury is allegedly running printing presses 24/7 to accommodate that order. Treasury employees were specifically ORDERED not to talk about this to anyone because it could cause economic collapse.
“Even worse, I was also told that the whole Immigration Amnesty Debate (especially the well-funded well-attended protests) was deliberately scheduled to take place now, to divert attention from this massive printing/devaluation of the U.S. Dollar. The feds allegedly figured that by the time anyone found out, they could smooth things over. They figured wrong. Surprise, boys, you’ve been exposed!
“If you think they’re printing this money to prop up the physical economy, think again.
Wednesday, March 29, 2006 10:21:37 AM
Anonymous said…
“might i add
“Watch for Gold and silver to skyrocket in price within days as the world wises up and begins dumping the U.S. Dollar.
“UPDATE: As of 9:05 AM this morning, Silver is at a ten year high and Gold is within a few dollars of a 25 year high. The U.S. Dollar is falling against all major world currencies. . More details as they become available. ”
Wednesday, March 29, 2006 10:23:43 AM
Freakin’ idjit tinfoil hat thinking. The Fed doesn’t really -print- money. When you hear the people that understand this and they say “print money” they are using shorthand for injecting liquidity into the banking channels. When you hear somebody claim “The U.S. Treasury is allegedly running printing presses 24/7″ you can be sure they don’t have a clue and can be safely ignored.
Thank you. Who starts these stories, and why?
Gold freaks start these rumors.
Not that he’s always ight, especially with currencies, didn’t Warren Buffett just take a big position in silver?
Unless they’re expecting a run on the banks.
Then it would be an immigration related, international dollar issue and wouldn’t need anything like $2T. There’s a good chance we are printing 24/7 as we replace the bills in circulation with the new generation of counterfeit resistant currency. Seen the new $10 spot, way cool especially the metallic ink red torch of liberty.
This is total BS. Ben, rather than “check it out,” just delete it.
Well gold is indeed up like 25 bucks in like three days. Copper is at a new high. Look at FCX for example since Friday, it’s up like 10%.
Dunno why even an “anonymous” poster would post something like that $2T figure without posting a source though.
Perhaps someone in the silver/gold market is spreading rumors????
This is why I have been so negative regarding conspiracy theories. People can make up anything, and if it is repeated often enough, it becomes a “fact,” complete with sources one can cite in footnotes. After a while, nobody bothers to check if the original claim was valid, and the number of footnoted “references” grows and grows.
Yes, I’d like $2T in tens and twenties please. How big a stack would that be anyway?
$2T in tens would be 200 Billion 10 dollar bills
$2T in twenties would be 100 Billion 20 dollar bills.
A stack of 100 billion twenties would be approximately 6787 miles high. I just happened to have a micrometer next to my computer and 1 bill is .0043 inches (x 100billiion / 12 / 5280).
24/7 $1 bills vs. 24/7 $100 bills. How manny $ per day difference (100x)?
The Bureau of Printing and Engraving posts the monthly production numbers on its web site. If you’re curious anyone can go look. The number isn’t anywhere near enough to make $2T in a year. I’d be surprised if the plant didn’t run 24 hrs a day–that’s not unusual for a major printing operation.
Yah even if the Fed is “printing money” day and night via its electronic equivalent (which I believe BTW) I don’t think we can consider axisoflogic.com to be a credible source. A quick glance at the site shows it to be mainly far-left / socialist ideology and tinfoil-hat conspiracy-mongering. Not the place to look for reliable commentary on the capitalist system.
Like ONLINEJOURNAL.COM? You should see the “Denial, it’s not just a river in Egypt” rubbish it published now making the rounds of the sky-is-falling sites. Acording to the author, we are all pawns in the hands of “Diebold.”
Ah yes. “Axis of Logic”, a kook site filled with vile conspiracy fables such as this gem:
The Use Of Explosives In the 9/11 Attack
Oh, well. In the old days, people who spouted this stuff were put on medication and hospitalized. Now they have Web sites and magazines and book-signings. I keep discovering people, even old friends, who really believe demonic conspirators run the world, so I try to say as little as possible, and move toward the door without being noticed.
Why are we all so certain that none of these things could be true. This is the blog that has gone up against conventional wisdom every single day, pointing out how experts fudge, obfuscate and lie.
I am not putting forth that any of the “tin foil hat” ideas are true, but unless you have all the evidence regarding 9/11 conspiracies (impossible since much of the 9/11 commission work has been classified) peak oil, or otherwise sundry topics for conversation, then back it up with facts, figures and data.
Because the very same creepy-crawlers who promote this crap are also the ones who deny the Holocaust:
http://en.wikipedia.org/wiki/David_Duke
If you are insane enough to think that “9/11 was caused by the Zionist Mossad neocons in the White House” then go pick up your sheet.
Not to mention those who claim that lizard aliens, served by Jewish bankers, Satanists, and Gardnerian witches are coming to eat us:
http://davidicke.com
Water seeks its own level.
That is not a logical argument. Saying that one group who denies an event with undeniable historical accuracy equals a group that questions the conventional wisdom of an event or events shrouded in secrecy and lies is a false argument.
I am looking for information on Italy and France. I know that smaller towns will be less affected than large cities, but does anyone know the status of property values there?
nhz, perhaps you know?
don’t know much about italy but my guess is that a few nice areas have severe bubble status while in the rest of the country the bubble is small relative to most other EU countries and the US.
In France the bubble started out relatively late - except for some big cities like Paris, the Riviera region and parts of Normandy (UK speculators!) which where always expensive. In the French countryside the bubble started around 1999. At that time you could still buy a nice castle for something like 300.000 euros. Now it’s 3-4 times more and what is available is often far less attractive than 5-10 years ago.
The same goes for ‘normal’ homes, but it depends very much on location and type of home (homes that are attractive to foreigners have doubled or tripled in recent years).
One sure sign of a French RE bubble is that if you visit tradeshows that sell foreign investment property here, France is not really on the agenda anymore - all the nice deals have been taken years ago and even the French themselves complain that they have to buy over the borders for investment properties.
But without a doubt, there are still small villages where you can buy a home for maybe 25-50.000 euro (just like in some rural parts of Spain, Italy etc.). Don’t think you would want to live there or even spend a vacation …
I dont have deep knowledge about Italy, but I am living here for a while and the apartments are very expensive to buy, not wo expensive to rent. Italian friends confirm the basic symptoms of a housing bubble in most cities. However, I can not speak in detail.
could be, they are part of euroland now with all the fine things like severe housing bubbles that come with it.
Thanks very much for your insight! I can’t believe this thing is reaching into even the smallest villages and towns.
Any hope of this returning to something at least resembling normal (referring to these smaller European towns, the “castels” in the French countryside for example)?
“White says that a line frequently trotted out by estate agents is that ‘buy-to-let investors are not worried about rental yield; they are in it for the long haul of capital appreciation.’ That is fundamentally unsound investment advice.”
Finally, people are paying attention to rent equivalents in the press. I rent a 3BR/2BA townhouse for 1595/month in Aptos and the places I live next to have been selling for around $700,000 on average that at the least on an interest only would be double my rent! A person bought a place down the street for I don’t know how much, but they were asking 2400/month for a 2BR/2BA townhome. They didn’t get that place rented until they dropped it to $1850. That’s quite a big drop in that mortgage holders bottom line!
I wouldn’t even think of buying one of these places until the prices came down into the $275-300K area, as rents around here are still only in the 1600-2000/month range. The only thing I can say that Santa Cruz may be able to hold onto a larger part of the homes appreciation is that, although flippers did account for a lot of appreciation most houses were purchased by long term homeowner types. A specious argument I know, but this place has seen very little home building in the last 30 years because of zero growth initiatives. Hell, even if the prices drop I still wouldn’t stay here much longer because santacruzsux!
and soon phoenix will take center stage. it will spread from there like a cracked windshield. it will jump the atlantic to nhz’s neighborhood.
you can count on it.
Can someone with insight comment on the real estate frenzy and bubble like state in many of the Metro Area of India.
Hold your breath! In parts of Bangalore and Hyderabad, Bombay from First hand knowledge, I know prices of Residential Plot and House has DOUBLED in NINE MONTH!
I can not figure out from where the money is coming.
One reason for the growth is previously one could not get easy loan based on your job or salary. Now it is much more easy.
Even then, the price is high compared to average salary.
The people who are buying and pushing up the price , some how they are in IT related profession, holding OFFSHOREed Job from USA.
Their Salary is 3 to 5 times better than the Industrial Sector whose earnings are local, within the country.
Anybody please post.
Don’t buy yet…
OH, I forgot to Add the Stock market! That is on Tear. It has been continous rise over the last few years.
For sure , the growth rate of the indian Economy is higher, at about 8% annual rate. However the market is easily manupulated.
Indian stock market /economy deserve as the export has been growing over the years. The concern is when price rise of stock and real estate rise disproportionately, as seem to be happening there, IMHO.
India is “different” - yes it is. Because infrastructure is pretty spotty, good localities in booming cities with access to the best schools, jobs, hospitals etc will do very well. Yes there are cycles, but the fundamentals are in place for even more growth, considering the increasing affluence. The only factor which might swing things the other way is if India were to upgrade its urban infrastructure, build satellite towns and metro systems like China has done - this will ease pressure on prime property.
India’s bubble has a very high and positive beta with respect to the US bubble. When the US housing bubble collapses, don’t expect India’s to hold up…
JMHO
yes, I think it’s very similar to what happend in recent years in Shanghai etc.: these are just the pores where the global bubble is sweating things out.
Most of this RE mania in India and China is strictly limited to the cities that have strong ties with international trade and finance, and that are by definition part of the same bubble.
Sure but difference is most people there dont over stretch to buy homes. The home loan rate currently is 9%. Can you imagine what would happend if home loan becomes 9% in US. I dont even want to know!!
you don’t need loans to make a bubble…
Especially when you have many wealthy Silly Valley employees who speak fluent hindi and are happy to trade a modest home in Silly Valley for a permanent trip back to their homeland.
Spendthrift means a reckless spender, precisely the opposite of what the article indicates (even though it resembles being ‘thrifty’). They WERE spendthrifts and are now savers/thrifty.
Right that was what I was wondering too… maybe “spendthrift” has a different meaning down under
Oh. My. Gawd.
i looked at fourplexes in east oakland last month,in bad shape and worse neighborhoods (23rd ave) that sold in late 05 for 170 times the monthly rent or more….old ,poorly maintained stuff that should sell for 60xrent if fixed up,and they needed a lot of fixing.
170 times a months rent? That’s hardly bubble territory. Heck, I would pay 170 my rent for the house I live in. “Should” sell for 60 times rent? That is what you “should” expect to pay at the bottom of a severe bust and is way below fair value.
I always thought that “X times rent earned” calculation was for a *years* rent…and Suze Orman told me (and all her viewers…) that I should buy if the price is 20X my yearly rent. I assumed the Dublin figure was meant to indicate 100X yearly rent for the place !
That’s quite bubbly, so I thought maybe it was a joke on the order of the gradeschool “you know why Ireland has the biggest bubble on the globe? because it’s always *dublin*”..
where did the 100X figure come from anyhow…I didn’t see it in the above article…
cheers all…
The first home I owned in Calif was in 1977 at 7x annual rent. That was cheap. The next home was 1983 at 13x annual rent. So you could almost break even on rent alone. The next home was in 1996 at 18x rent, getting kind of pricey.
Today I rent and my home is valued at 38x annual rent. It would cost me about 2.5x as much per month to own.
So imagine what 100x annual rent—as is predicted for Ireland—means. Insane. 30-40x is a bubble. 100x is a bubble for all times. These Irish folks are going to wake up to a severe nightmare one day. And most of the loans are 100% LTV and interest-only. Plus most are only 10-year, so after 10 years, they will have to start paying all the principal off in 15 short years. UFB.
It won’t happen. The whole house of cards will fall long before then and you’ll have a nation of renters with all the homes owned by banks (and probably the Chinese who are likely buying the Irish mortgage paper as they are in the USA.)
wait, that’s a joke right?
But there’s no global housing bubble. There’s not even a national bubble in the U.S. Alan Greenspan said so. It’s just a few minor, localized areas of froth like Ireland … Croatia … Spain … the U.K. (past tense) … Australia (past tense) … California … Florida … Greater Boston (past tense) … Arizona … Spain … am I forgetting anyone?
This has nothing to do with ridiculously reckless lending, too much money pumping by idiot central bankers from D.C. to Frankfurt. It’s all just a few localized areas of froth. Nothing to see here. Move along.
No bubble in Antartica yet so far as I can tell. (Can’t say as much for the Yukon, based on one of Ben’s earlier threads…)
Speaking of frozen wastelands, there’s a bubble in Iceland, too.
(Actually, Iceland’s kinda nice; I lived there for awhile. But its population is basically stable and they aren’t exactly running out of land…250,000 people in a place the size of Kentucky. And it’s one of the few places where the realtors’ line “they aren’t making any more land” isn’t true, although the new land created by volcanoes does tend to be a little toasty.)
very similar to New Zealand, which also has a severe housing bubble despite being one of the (relatively) least populated developed nations.
even the recent crash of their currencies looks similar
I think this has a lot to do with flash capital moving around the globe (and it looks like the flash capital is now trying to find a safe place to hide …).
Dead right NHZ. New Zealand has about 4 million people in a country of 100,000 sq miles—larger than the UK which has 50 million people and a little smaller than Japan with 200 million people. Absolutely lovely place but nothing but land as far as the eye can see.
Immigration policies in NZ are very tight so there is little inflow of population. There’s absolutely no reason for a housing boom in NZ other than mania sentiment and EZ money. Not a damn thing has changed there in the past 5 years to warrant a doubling/trebling of RE prices.
Crash of the local currency? Hmm, the kiwi$ is hovering around US80c nowadays. (More a sign of the latter’s weakness than the former’s strength. Still, far from a crash.)
Also, money here in NZ is neither easy nor cheap to borrow. Short-term fixed rate mortgages are around 10%! (No such thing as 30-year-fixed.)
I agree there is a bubble here (an affordability crisis more than anything - wages have grown significantly in the past decade but those rises PALE next to home purchase rises). But let’s not misrepresent….
they’re still fretting about that tucson thing over at sandy eggo investors forum:
“When does foreclosure become a viable option or stratedggy?
If some of you put downpayments of 10K or less, it sounds like a 5 month vacancy will erode your initial equity. I know nobody wants this on their record, but a vacant home with little prospects of selling or leasing will become a hungry alligator.
I’m not sure what I would do at this point. I might just walk away and have the bank have it and then work on my credit history. Tough call. “
So you’re saying just bend over and take it like a man?
Don’t know if this was posted yet.
Economists Predict State Slowdown, LAT
The effect of a cooling housing market will last for the next two years, a UCLA forecast says.
http://tinyurl.com/hqotk
Third time now:-)
Posted 4 times now once in the previous thread and you are third in this one. Surely it will run rampant through all the blogs before tomorrow.
Late to the party as usual…story of my life
“Shares hit plateau
Stock and bond markets stabilize and investors show some optimism over the economy and corporate results.”
http://www.marketwatch.com
I wonder if the plateau will be permanently high this time? I guess the marketwatch editor should read this blog, as then he would realize that he is inadvertenly making reference to regretable statements made in 1929…
wow, silver is at $11.07 and gold is at $573.
Long on gold, short on builders
If skyrocketing gold goes along with a $US devaluation, then now might be a good time to invest in one of those McMansions…
Shirley, you jest.
Hopefully I jest…
He’s right, if high inflation is coming one of the best possible bets would be to buy a fixed asset with as much fixed rate debt as possible. Think if it this way, overpaying by 50%-100% makes sense if you know you can pay it off with fixed payments you will do very well in a high inflationary environment (the opposite of buying a Treasury in the early 1980s).
??
Update 3/30. Whoopee!!!!
OT, but on gold investing…
Anyone have any opinions on the GLD and the IAU exchange traded funds? Pitfalls, etc.?
“‘The slowdown that the RBNZ (Reserve Bank of New Zealand) wanted is now here, and in spade,’ economist Brendan O’Donovan said. O’Donovan said consumers were becoming more circumspect as the housing market goes sideways and employment growth slowed.”
well, I’m trying to follow the NZ market but I’m not seeing any decline in prices yet. The only sign of a ’slowdown’ in the housing market is that the time on the market increased significantly in the last two months (while it has been stable in the last years) and price gains are limited (average sales prices go up or down a few % each month lately).
I’m guessing that the averages hold up nicely because the bubble is spreading from Auckland (where the party may be over soon) to more rural areas like the South Island where the party started just 2-3 years ago.
The NZ$ did make a spectacular dive in the last two month, just like the Iceland Krona. Let’s see if they can make it a real bungeejump. Some more signs of worldwide instability I guess …
Goldbugs often forget that if the dollar was really going to be massively devalued, then acquiring extrodinary levels of debt now would be a good thing. Suddenly a 600K mortgage becomes the equivalent of a 200K mortgage. Tangible assets are a good buy in a major inflationary scenario that goldbugs wish for. By their logic, those flipuvestors are actually making a good decision because inflation is paying down their debt.
Someone help me out, I don’t understand the goldbug mentality that says buy gold, but don’t buy homes, because if what they say is true then inflation would pay the debt off for you.
it is not that simple …
a massive dollar devaluation will also mean a massive increase in US interest rates (= much lower home prices, monthly payment remember?). I don’t think that in this time of global wage arbitrage US wages have much chance of increasing to keep up with the higher mortgage payments; people will be luck to keep their job if such a scenario unfolds.
buying gold is mostly about retaining purchasing power, and as a safeguard in case the global financial system blows up (but you need real gold than, not paper gold).
What if someone behind the scenes manages to keep a lid on the long-bond yield and published, no matter what raging commodities and other real-asset prices (houses) suggest is the underlying inflation level?
with lots of manipulation all bets are off (and I am sure many things will happen in the next years that we have not even thought about).
This problem applies to precious metal markets as well - this market is so small (market capitalisation) that the FED can easily monetize everything; they have already suggested they could do it.
Massive inflation without a corresponding increase in affordability leads me to believe that real estate has no more upside even if the Fed lowers rates to zero. The debts still have to be paid. In fact, we’re seeing continued effective loss of the American consumer’s purchasing power. Globalization continues to erode wages towards the mean worldwide “labor rate”.
Gold vs housing can be somewhat explained by supply and demand as well. Housing supply is huge, demand has been virtually killed off, and the builders keep adding all the while. There is little degree of rarity with respect to housing at this time. Above ground gold, that’s a different issue.
In other words, if massive devaluation (inflation) of US dollars continues, real estate has no upside if affordability (wages) are flat or declining. Real estate has been historically viewed as a hedge against inflation, but things are quite different in today’s global economy. Gold is a hedge against currency devaluation and a refuge for those seeking a safe haven from inflation. Free and clear real estate is a safe haven too. Today, leveraged real estate is a two-edge sword, like buying stocks on margin at the top of the market. Hope this helps answer your question OC.
Thank you everyone, this does help as I did not some understand the connections that many of you have pointed out.
Thank you very much
housing in SWISS is up only 12% in 4 years- the soundest economy in the world
exactly, they are safe from the dimwits at the ECB …
Well, Germany is down over the same period. Swiss monetary policy is falling into lockstep with the ECB and is not the driving force in preventing a housing bubble. Swiss interest rates are very low, lower than the EU. Both Germany and CH had historically much higher property prices than neighboring countries. Also the % of home ownership is low. I think it is not more than 40% in CH. It puts the Anglo-Saxon “home ownership” nonsense into perspective…….
those are certainly valid points, but the major issue is always ‘easy money’. There is plenty of it in the Netherlands, UK and the other EU bubble countries. And that IS something that the ECB can control but does not want to control.
NONE of the stupid laws that push real estate prices skyhigh in the Netherlands exists in Germany as far as I know. No 50% HMD, no taxfree gains on selling your home, no huge government housing subsidies for renters, no free loans for starters, elderly people with low income, immigrants etc. And probably less ‘zoning’ practices that push up land prices to ridiculous levels.
but there is some light on the horizon: I just read today that a big group of mortgage brokers started advising their clients to lighten up on mortgages (!). They fear that the HMD will be removed after the elections (next year) and if at the same time interest rates move to 6%, monthly payments for the average homeowner would increase by nearly 150%.
I don’t think the change will be that dramatic, but there certainly is huge downside risk - even without all the other risk factors that are present here.
I live in Switzerland and this number might be true in the less desireable areas but is far from true in the major cities and surrounding areas, like Zurich and Geneva. I know of a house that was built in 1999 for about CHF 700K that is on the market now for 1.3M CHF. This is normal in this area. It is ridiculous like in parts of the U.S.
in the Netherlands nearly 2x the price of 1999 would be considered a bargain now; it would probably sell within a day.
In my area of Netherlands many homes sell for 5-10x the 1995 price (probably 3-4x 1999 price)
10-year IO, who wouldn’t buy?
It’ll take a while to work the froth off the beer, but as the slow, painful crash begins, my co-worker, knowing that I dabble in houses, asked me if I thought it was a good idea to buy some rental houses in Benton County, Arkansas. She heard it was one of the fastest growing areas. I told her it was a great time to buy. I never really did like her.
if you see hyperinflation w/in the next few years, sure, load up on debt and try to hang on. but that’s a big risk. you have to be able to keep your job. you have to make sure your bank doesn’t call in your bank loan. one can believe gold is a good investment and not believe in hyperinflation. gold has doubled these last few years, real wages haven’t done anything, basically.
if you bought gold and the dollar devalued, the price of homes may increase in dollar tearms, but they would probably DECREASE in terms of gold, silver and non-dollar currencies. so if you held gold, you get not only the increase gold but the decrease in the price of a house in gold terms.
Bahrain (3/25/06): 1517 Permits in 2005, 425 in 2004
Vietnam has a problem too. They pay for homes with gold…
that’s sort of what went wrong with Argentina and the Asian tigers. they borrowed using foreign currencies but their incomes are priced in local money. the foreign currency rises, in this case it’s gold, but your income doesn’t.
Japan has overspent too. The govt has greatly increased their debt with big projects, IIRC.
Me, the American currently on assignment in London here chiming in:
Irish girlfriend (Dublin based) received another two calls this week from sales agents of “sold out” developments visited MONTHS ago with news that units had suddenly become available… Yes, this bubble is global. God help us all…
Keep any on Iceland…. It does not get much coverage in US press. The FT had two important articles on their enormous credit bubble. The doubling of property in Reykjavik is small fry compared to the other madness.
“Australia has become a nation of spendthrifts, as people save…”
This may have been mentioned above, but ’spendthrift’ refers to a person who spends freely and recklessly. Kind of embarrassing that a news reporter for a major urban paper could make that mistake.