Prices In Other Countries Were Even More Overvalued
I suggested the possible global housing bubble collapse as a weekend topic. “As a weakening housing market appears to be dragging the American economy into recession, the International Monetary Fund warned this week that home prices in other industrial countries were even more overvalued. The fund also concluded that central banks should pay close attention to home prices and consider raising interest rates when prices are rising rapidly.”
“That conclusion is directly contrary to the established policy of most central banks, including the Federal Reserve, which ignores home prices when they are expanding.”
One asked, “How will this affect the U.S.? Will it end the ‘decoupling’ scenario, where global growth prevents the U.S from spiraling downward? Will it cause the dollar to crash, as net savings countries have losses to cover back home?”
“Or will this cause the dollar to stabilize or even rise, as people conclude that all the other countries are skewed too? Finally, what does a global bubble, in places with different cultures and economic systems, say about human nature or our modern globalized society?”
A reply, “IMO Asian economies are decoupled from USA, but the financial systems are not. I don’t see how this scenario is dollar-positive.”
More questions, “Lots of paper wealth is going away in the first world countries because of RE deflation. Will this be the end of emerging economies blistering growth?”
Another said, “What becomes of the Pound & Euro? England is in a much bigger mess than us. Houses went up many multiples more there, and the cost of living is absurd.”
“German & Swiss citizens didn’t participate in the housing bubble, but their banks went all in. Ireland & Spain might just be the cause of the breakup of the Euro, as the other senior members are highly cognizant of the possibility of these 2 rotting apples, spoiling the rest of the barrel’s contents.”
“Other tiny (NZ) or moderate bubbles (Australia & Canada) just add fuel to the financial fire. China doesn’t get talked about much on here, but friends that travel regularly there, tell tales of posh condos built on spec, that sit unoccupied for years, this on top of the Shanghai stock exchange falling almost 50%, recently.”
“What does it all mean to each of us on an individual basis?”
From Bloomberg. “Thanks to Spain’s slumping property market, house buyers are as popular as movie stars. Reporters outnumbered bidders as lot No. 1 hit the slate in Europe’s first ‘Dutch auction’ for real estate last weekend in Madrid.”
“Of 216 lots, 194 were withdrawn when they weren’t purchased at the reserve price. One man, investor Manuel Sainz, bought almost half of everything sold.”
“‘Next stop Hollywood!’ laughed Sainz, head of property company Las Terrazas de San Blas SA, as he fought off the press after buying 10 properties at discounts of as much as 30 percent. The event shows the depth of Spain’s housing bust after prices tripled in the past decade.”
Scotland on Sunday. “House prices in Scotland are now at a virtual standstill with the global credit crunch and the mortgage squeeze starting to affect owners throughout the country.”
“Professor Gwilym Pryce, of the Urban Studies Department at Glasgow University, said: ‘In real terms we are at zero growth now and what happens next depends on the wider economy…My worry is the lower end. Many more people own homes in Scotland than they did in the early 1990s and the level of mortgage indebtedness has been increasing. The bottom end of the market could be flooded with people wanting to sell.’”
“Mark Hordern, marketing manager at the GSPC, said: ‘In the last two or three weeks the market has slowed noticeably. People still want mortgages to buy new homes, but it is increasingly difficult to get a mortgage to allow you to pursue the purchase. Effectively there are no 100% mortgages any more.’”
Trend Capital. “By the end of the year, the prices in the real estate market will increase by 12-20%, the Head of State Real Estate Register Service, Arif Garashov, said on 1 April.’”
“With regards to the activity of the market, Garashov said that although the market was stable over the recent period, it is impossible to consider the situation as stagnant.”
“Many housing buildings are being constructed in almost every part of Baku. Considering that there are not such a large number of people in Azerbaijan, all apartments cannot be sold immediately.”
“‘In addition, it needs to take into consideration that those who urgently need apartment already acquired it and it is one of the reasons for stability in the market,’ Garashov said.”
“The public organization Participants of Real Estate Market stated that the average prices of apartments in Baku had exceeded $130,000 in February.”
“Land scarcity, real-estate speculation and rapid urbanization are fueling soaring prices for graveyard plots. Chinese consumers, facing the fastest inflation in 11 years, are finding that the rising cost of living has reached into the afterlife as buying a graveyard plot becomes more expensive than a home.”
“Five of the capital’s major cemeteries charge as much as 30,000 yuan ($4,273) per square meter for a standard plot, compared with an average of 20,000 yuan per square meter for an apartment in the city center, the English-language China Daily reported today.”
National Business Review. “A senior Cabinet minister has criticised banks for fuelling the housing debt boom and has suggested they have only themselves to blame. Agriculture Minister Jim Anderton said today that if house prices fell as much as the BNZ was warning, banks should look in the mirror.”
“‘Although wages and incomes in New Zealand have been growing quickly, they have not been growing at a pace that could keep up with inflating house prices,’ the minister said. ‘The banks have provided the fuel that has pushed up house prices over a fairly long period now.’”
“‘It’s all very well to warn now that house prices could fall. But where was the BNZ a year ago when it was maintaining another 14 percent increase in indebtedness? It’s a bit rich for the pot to now be calling the kettle black,’ he said.”
The Toronto Star. “Realtor Jim Common has been riding high on one of the most bullish markets in Canadian history. Just don’t ask him about this year. ‘It’s been miserable,’ the ReMax agent said. ‘Buyers just seem stopped dead in their tracks.’”
“The Royal Bank of Canada released a forecast for Ontario, saying the province was ‘teetering’ on recession as certain sectors of the economy, particular manufacturing, are hit hard by the soaring Canadian dollar.”
“A report by the bank last month also noted a ’significant shift,’ with the proportion of Canadians planning to buy a home in the next two years falling to 23 per cent, down 5 percentage points compared with 2007.”
The Star Phoenix. “Saskatoon house prices appear to have eclipsed Edmonton’s prices in the first three months of the year, but a local real estate sales manager says average family income here can’t pay for Edmonton-level house prices.”
“Royal LePage’s national quarterly report notes ‘thriving Saskatoon’ saw year-over-year house prices on the west side of the city jump 66 per cent in the past year.”
“That’s the biggest increase anywhere in Canada, but local Royal LePage sales manager Norm Fisher sees the ever-rising prices city-wide as a double-edged sword. ‘When an average family income can’t service a mortgage on an average home, you can’t continue that indefinitely,’ he said.”
“While standard bungalows in Saskatoon sold for an average $340,000 in the first quarter — a 50 per cent rise in one year — the price in Edmonton was $330,000, a drop of 4.9 per cent. Standard two-storeys in Saskatoon sold for $395,000 on average in the first quarter of 2008 while the price for that type of house in Edmonton was pegged at $363,707.”
The Leader Post. “Regina housing prices are continuing to go through the roof, with year-over-year increases ranging between 40 and 60 per cent, according to the latest quarterly report by Royal LePage.”
“For example, the average price of a bungalow in Regina jumped 50 per cent to $237,000 in the first quarter of 2008 compared with the same period last year, said the report. Detached two-storey houses saw a 42-per-cent increase to $227,000, while condos saw the biggest price increase — 57 per cent — to $161,000, compared with the first quarter of 2007.”
“Mike Duggleby, manager of Royal LePage Regina Realty, said Regina home prices are finally catching up with prices in Saskatoon and other major urban centres in Canada. ‘We’re just playing catch-up,’ he said.’”
“‘Even though some people are getting a little frightened by what’s happening in the market, we’re still behind other centres as far as housing prices are concerned,’ Duggleby said.”
“And with average prices $100,000 below the national average, there’s plenty of room for price increases, he added. ‘If you’re waiting for prices to come down, don’t hold your breath.’”
Really long time readers may remember that the markets in the UK and Australia started breaking down long before the US. But they did a bounce-back that generated a lot of trolling from those countries. Some here countered that when the US went into an inevitable recession, the global housing bubble would follow.
This is where it gets interesting. And who knew that the end of the line for the biggest financial mania in history would be, of all places, Regina?
Absolutely! The thing that has me tickled, is that the media (at least in our neck of the woods) is finally reporting a slow down with the caveat that the market should/will turn around and head back up in the second half of ‘08. Yet they give NO data to back this claim up. Will the FED/ECB’s ultimately just by pass banks and shovel IOU’s out of the backs of trucks? What reasonable/logically thinking person with a grain of common sense thinks you can have years of unprecedented gains and have a correction that only lasts a few months? Ain’t gonna happen.
Owe, Canada?
Saskatoon will not go silently into the night…
“Saskatoon house prices appear to have eclipsed Edmonton’s prices in the first three months of the year, but a local real estate sales manager says average family income here can’t pay for Edmonton-level house prices.”
Norm Fisher is that rare bird — a realtor who’s actually concerned about this bubble.
Yes, it’s nuts. It’s freakin’ Saskatoon fer the love of Pete. Average income is around 38,000 a year.
Oh, Canada.
“But they did a bounce-back that generated a lot of trolling from those countries.”
AU got a boost from the commodities bubble; not entirely sure about the UK, but I believe 100 pct+ lending may have something to do with it?
Yeah, Australia is selling lots of natural resources to China.
I was too busy checking out Katie Holme’s new ‘do to be concered with the little facts like the world’s economy is going to hell in a handbasket!
“And with average prices $100,000 below the national average, there’s plenty of room for price increases, he added. ‘If you’re waiting for prices to come down, don’t hold your breath.’”
Regina: quiet, boring, charming, but very overpriced for what they have to offer (yes, I’ve been there)…just like the typical home in the USA, sky-high wishing prices that are justified just by virtue of being an urban center where “they don’t make any more land”. lol
You can throw Warsaw Poland into the bubble pot too. Massive home inflation in just a couple of years when we were over there in 2005/2006. Tiny little downtown “apartments” doubled in price in just two years.
try this article from the Times Online last month
http://property.timesonline.co.uk/tol/life_and_style/property/investment/article3540763.ece
Knight Frank’s latest quarterly Global Property Index, made available exclusively to The Sunday Times, shows that prices in many parts of the world are still rising at a considerable rate — and, in some cases, have even been accelerating.
Surprisingly, perhaps, the list is headed by Bulgaria, where prices rose 34% last year, compared with 17.4% in 2006 — although the sharpest growth has been not on the Black Sea coast or in the mountains, both of which are suffering from oversupply, but in Sofia, the capital, where property inflation reached 50%.
Bulgaria was closely followed by Singapore (up 31.3% on the year), Russia (up 30%) and Poland (up 22.4%). Elsewhere, though, there were signs of a slowdown — and worse. Prices in Spain last year were up 4.8%, compared with 9% in 2006, and in France by 2.5% (also against 9%).
There were also some absolute falls: 0.3% in America and a substantial 7.1% in Latvia, 7.3% in Ireland and 14.5% in Estonia — all three of which had seen spectacular growth in 2006.
My favorite quote from the article
“There is always money in property,” he says. “You just have to feel in your stomach that it’s a good deal. “My fiancée keeps a spreadsheet showing how many properties I have and what their status is. It’s very reassuring every couple of weeks to take a look at it. It makes you feel good and you sleep well.”
Potts’s portfolio — bought largely through Spanish-based Obelisk International — is considerably larger than that of the average property investor.
We are headed for 1992 so if you were shoveling sh*t in 92 somewhere in the world…get your boots on.
Does that mean I get my hair back?
Mike
Accurate observation dimedropped.
Shill de Espana
“Of 216 lots, 194 were withdrawn when they weren’t purchased at the reserve price. One man, investor Manuel Sainz, bought almost half of everything sold.”
Anybody have an idea about the state of the real estate market in Italy? My MIL has just taken over an apartment from her mother there … I’ve advised her to sell ASAP, just on a general appreciation of the fact that this bubble and its consequences are global, but where does Italy sit on the spectrum from Germany to Spain? Anyone know?
The NYT/IMF article says that prices are more reasonable in Italy and France and ties it to more cautious lending. But I have my suspicions as I can only think of a few places I haven’t found bubbly reporting on in the past few years. Sometimes, in a country like Italy, there aren’t many english press outlets, and so the HBB doesn’t cover that place as well. Like S. & Central America. But I know for a fact there is a serious real estate bubble in Costa Rica, Panama, etc.
I think many parts of France are severely overvalued too by know, most of all because of all the foreign buyers (UK, Dutch etc.). I read last month about a Dutch guy who purchased a nice property in France in the early eighties (yes, long ago …) for a little over 3000 euros and sold it last year for 1.2 million.
He had no idea what the property was worth, to him it was just a nice residence in France (he lived there for many years).
Many French properties that are attractive to foreigners, like vacation homes on nice locations (or close to airports / ferry), historical buildings that are not too big etc. have increased by 5-10x over the last 10 years. I guess some hotspots in Italy have the same problem. It’s the same with the capitals and nice vacation areas in Eastern Europe: it’s all determined by crazy money, foreigners that are driving up prices by speculating with their home equity or other free money from the bank. Locals have no chance to compete and are no longer relevant for the price level.
Eastern European capitals are extremely overvaluated, especially attractive capitals like Prague, Budapest, Riga, and Tallinn. Some properties are more expensive per sqf than in USA. Speculations are fed by two factors: inner, when economies of these countries are growing more than 5-10% per year and demographic boom, and foreigners, who came mostly from UK and Netherlands. Some mountainous regions of central Europe have new villages called Dutch villages, because they were specifically built for clientele from that country. People in Eastern Europe still see real estate as the best investment for their money. The inflation ate your savings, so did the numerous bank collapses, and devaluation throughout the decades. The estate would be lost less likely, only in the case of the war. During the 80’s Ex-Yugoslavia had big building boom, since all money people were put into housing market, and the home was the safest way to invest in the wave of triple digit inflation. Give couple more years and acceptance of Euros around the region and the housing bubble will be over.
reporting from south america (with no hard data to backup my assertions
)
here in Uruguay the situation is a bit different -
there are no compiled public sales records that i’m aware of. therefore, to make quick accurate reflections of the entire market is difficult to do.
however:
uruguay is still recovering in large part from the currency crisis which obliterated argentina at the early part of this century. so, in a lot of places it is recovering from a very severe downturn.
equity locusts — and locusts with “real” cash continue to prop the more expensive areas. for years it was the argentines…lots of people from spain during the middle part of this decade and now, it appears, brasil’s recent economic good times are propping the country up somewhat.
worldwide meat prices have been supportive as it’s one of the prime areas to raise grass-fed cattle…..grass-fed cattle (i imagine - i’m no rancher) means that you are as subjected to the raising grain (cost inputs) prices of the other worldwide producers.
since real estate is priced in us dollars usually here, the falling dollar (relative to the real and the euro) have tended to make things look very reasonable (i imagine).
up until the last couple of months there was no large commercial lenders offering mortgages (!) that meant that RE was a lot more illiquid, a lot of houses were heirlooms — generational purchases from the few “good times”, and very few young people who had not expatriated and returned had the coin to buy.
now “banco republica” has begun offering 20 year loans for RE to employees of the govt and quasi-govt type socialist entities that roam the country. (if you think it’s hard to fire someone in the states, they literally have people who have landed jobs at these entitites -like cops, phone company, and banco republica itself) that don’t come in to work except on payday. I’ve also heard credible stories about people holdin multiple full time jobs — only possible if you dont’ have to show for one of them).
anyhow, as i’ve explained here before the lack of credit and low prop taxes create some other “foreign” “distortions” in the marketplace…at least, foreign to US citizens….
landlords aren’t afraid to let places “go begging” for months at a time rather than take lower than what they perceive to be “fair”. this is exascerbated by some socialist policies that let people once renting continue to “squat” and make it difficult to remove them –even if they aren’t paying rent.
the other “side effect” is that 5 months security deposit on a one year lease is “typical” and only something that can be reduced through negotiation.
will things continue to grind upwards? there is no saying for sure…..i was hoping a crash in spain would eventually kick the legs out from under the “higher end” here, but with brasil coming on, the ag prices looking strong, and the lack of “overextended” “owners” in the market at best i could hope for (as a potential buyer someday) is a grind sideways i’m afraid.
ciao,
fuBarrio
interesting … at the recent Dutch Emigration Fair (huge yearly exhibition) there was promotion from Uruguay. Clever … Dutchies are still flush with cash from their own housingbubble, and Uruguay has many of the features that are in high demand over here (like space, lots of nature and a general lack of stress). My impression from what I heard is that home prices in Uruguay are 5-10x lower than in Netherlands (starting around $ 20K for small apartment, while even the most horrible POS costs over $200K over here). Just hope that this promotion is not going to be very sucessfull, because in that case you will get the worst equity locusts of them all. Rich (retired) Dutchies are leaving the country in droves and Uruguay does look very nice on pictures (a got the brochure from a friend …).
Article and photo essay from IHT.com:
Towns in south Tuscany suffer from depopulation
Tuscany is known as a land of plenty, where beautiful landscapes and picturesque hilltop villages combine with a rich cultural heritage to attract tourists from around the world. But off the tourist track, in its poorer areas, whole towns are becoming depopulated and thousands of acres of agricultural land falling into disuse.
The trend is particularly severe in remote areas of Tuscany’s south, like the hilly land surrounding Monte Amiata, an extinct volcano that rises over historic towns with houses inaccessible by car and fields too steep for agricultural machinery.
http://www.iht.com/articles/2007/04/13/news/tuscany.php
Thanks Ben, Hondje.
I read the article, but the 1-2 statistics without context they offer could be explained in various ways, so it doesn’t mean much to me. Last time I was in Italy (2003) friends I spoke to already found the RE market cripplingly expensive, compared to the economic opportunity out there, so yeah I’d bet there’s been a bubble. (One friend even generalized that “these days, your Italian invests in brick (i.e. in houses),” which seems a sure sign of bubble zeitgeist.) But I really don’t have a sense of how bad it is on the ground.
Hondje, this is in a medium-sized town on one of the big lakes up north … it’s not going anywhere, fortunately. Picturesque but abandoned farmhouse-type houses were always a dime a dozen over there. But cities and towns ought to be pretty comparable to cities and towns in other countries, I’d think.
I think usually RE in Italy is severely overvalued by local standards, but still cheap by northern EU standards … says it all.
The barbers of Seville are offering steep haircuts…
I have friends in Brazil…..I was cautioning them recently and they assured me it is “different here”.
Do you know the price history there and relevant rents?
I knew someone who bought a condo in Brazil when the real/dollar was 4:1. They sold it when the real/USD went to 2:1. That’s one way to play foreign currencies.
Ben- They tell me prices have skyrocketed over the past few years. Apparently there has been a huge infusion of Euro’s and of course they were supplying all of our granite counter tops.
For the first time in history they say that the poor are buying houses and the landed gentry is richer than ever. Brazil is a two tiered society, truly the haves and the nots. Totally unsafe. The rich live in towers to avoid being kidnapped.
To have a job in Brazil you really need to aspire to government employment. Every other person with an education is an attorney and is so to get a government position. Patronage runs the country.
I saw several developments in the west of Brazil that would rival anything here in the states as far as beauty and serenity. Prices were comparable to the U.S. The only difference is a perimeter wall with razor wire and a full time security force armed with machine guns. I am pretty sure it was to keep people out as opposed to in.
Kidnap for ransom is an accepted business in Brazil.
Great people and a great lifestyle if ya got Raels.
Reals…whoops
I have been there a couple of times late 80`s a real mess back then. I converted $100 and I got a hand full of $500,000 bills, I thought I was rich until I bought my first beer, like $200,000 quseseros? LOL. I do believe things are much better there now. I just heard a piece on NPR last week about Brailians buying one way tickets back home because the economy is better than there. The lady was from Boston and she said she has had a lot of friends going home for good.
Lane
When I was in New Zealand a few months ago…
You could feel the real estate market falling apart, we were driving north of Auckland to Cape Reinga, and it seemed like every third house was for sale.
We’d walk by realtors offices in towns, and their windows were plastered with offerings.
The NZ Herald’s (mainly Auckland & surrounding areas) real estate advertising section was around 130 pages, in the weekend paper.
I wonder how NZ compares with the lunacy in Spain.
Any personal tales of the Spanish Liquidation, out there?
the Spanish liquidation has not started yet, the socialist government is using their budget surplus to keep the bubble growing a little longer. Could take another year before we see real price declines for the whole country.
the Spanish liquidation has not started yet
NOBODY expects the Spanish Liquidation!!!
OT, but did anyone else see this:
http://www.iht.com/articles/ap/2008/04/05/america/LA-GEN-Mexico-US-Absolut-Ads.php
http://blog.beliefnet.com/reformedchicksblabbing/2008/04/absolut-vodkas-view-of-the-per.html
Saw it a few days ago,and sent an email protesting same. The marketing director’s email is jeffrey.moran@absolut.com.
Absolut said it was “stunned” by the reactions of Americans, and the ad, which ran only in Mexico, was intended to depict an “idealized” view of the future. Skip the Absout and drink Grey Goose, if you like vodka. Money is the only thing that drives these folks.
Tequila mockingbird
LOL…!
I’m not offended by the Absolute ad, but I do think it was a poor decision from a business stand point, given the feelings surrounding the issue in both the USA and Mexico.
I don’t care about the AD, heck its almost true.
Absolute as a Vodka is really 2nd rate. For value, we served Sky in the martinis at our wedding and everyone loved it! Grey Goose is good too, but my wife was already balking at the bar budget (we hired bartenders and supplied *everything* and thus saved $1,500 and had the surplus to take home. Several of my uncles/groomsmen now have nice martini shakers as a thank you for helping clean up.) Oh.. is it a good or bad thing to now have a lifetime supply of martini fixings in the bar?
Got Popcorn?
Neil
Agreed on absolut, way overrated. Seriously, good old fashioned Smirnoff is still a total deal. Won a 2005 taste test.
http://money.cnn.com/2005/12/16/pf/wine_hooey_0601/index.htm
Finance & Economics
House prices
High-rise living
Apr 3rd 2008 | WASHINGTON, DC
From The Economist print edition
The riskiest housing markets
WHERE are house prices most overvalued? As the rest of the world watches the bursting of America’s housing bubble, that question should be at the top of everyone’s mind. The answer is not comforting: many countries have had far hotter housing markets than America and are also suffering from tightening lending conditions thanks to the credit crisis.
“Where are house prices most overvalued?”
We’re number 13!
nhz — don’t miss this article…
Yea… but that note this quote from the article:
the IMF calculates the share of the increase in real house prices between 1997 and 2007 that cannot be accounted for by fundamental factors such as lower interest rates and rising incomes.
Wait… every drop in interest rates is assumed to be a home price increase. So now that rates are increase we can assume…
Got Popcorn?
Neil
Interest rates are not a fundamental. We are currently in a (negative) interest rate bubble which will inevitably unravel going forward.
unfortunately the Economist is still using the totally bogus NVM (biggest Dutch realtor bunch) numbers; they say home prices went up by 200% in 15 years, which is utter nonsense. If you use the more reliable numbers from the Kadaster the situation is FAR worse (they say up 400% in 15 years, but these statistics have many flaws that underestimate price increases). I have no doubt that the Netherlands tops the list in reality.
There was a discussion about a potential collapse of the Dutch housing bubble on TV yesterday. That was a novel idea, TV didn’t mention the subject for at least 5 years (maybe even 10 years). Some experts explained how much worse the situation in Netherlands is compared to US, e.g. when looking at home prices relative to income, total mortgage debt relative to national income, you name it and the Dutch come out first. Of course there was a high level manager from ING (you know them from ING Direct) who explained there was never a better time to buy, the Dutch housing market is extremely safe, prices are great and there is zero chance of a crash. I think many people in the audience believed him. Only one guy (a professional stock trader) gave some realistic numbers about the extreme housing situation and was expecting a severe crash (but he also didn’t know when that would happen).
Best part: the ING guy mentioned that in 1999 the Dutch central bank warned for the risk of a housing crash, because prices had gone up 400% or so in ten years. The crash didn’t happen (except for a mini-panic around Amsterdam) and prices are 2-3 times higher now. The central bank warned again last week so now people are sure: the Dutch housing bubble will NEVER crash and keep defying gravity. Even when confronted with the fallout around them (difficult to deny that by now), most of the Dutch cannot believe the party will ever end.
Equity locusts take note: It’s not too late to invest in Canada or Austria…
I seriously disagree with the Economist on RE in Canada. I watch prices in Nova Scotia via tradewindsrealty.com, and the price jumps in 3 years there have been staggering. In emails, the agent there I email confirmed to me that much of the buying has been Americans and Europeans who buy over the internet, without even visiting the place. Just recently, you can see some slight pull-backs in pricing.
And north of Toronto, in “cottage country” as the Canadians call it, where I spent last August, the price inflation is stunning. Beyond the multi-million dollar mansions and boat houses on Muskoka, even the smaller cottages have hit the 400k and up range.
I was thinking along the same lines. My impression is that Vancouver got just as bubbly as any of the condo-crazed coastal markets on the edges of North America, and Alberta is in an oil-driven price bubble. Not sure what kind of cockeyed logic The Economist used to cook up this cross-country comparison.
there are many Dutch RE investment funds that buy properties in Canada; these investments are promoted in editiorial articles in magazines that are read by the babyboomers. Our boomers have lots of cash thanks to the Dutch housing bubble; many of these people don’t know what to do with all their money and can keep foreign RE markets up for many more years. Keep in mind: they will extrapolate their experience with the Dutch bubble to foreign markets and assume there is still lots of room to the upside, wherever you go. Compared to Dutch homeprices, prices in 99% of the world are ridiculously low.
Wasn’t this the country where Piet Eicholtz’s work - the so-called Herengracht index - was discussed by Robt. Schiller in “Irrational Exuberance”? Schiller made the case that housing appreciation in Holland was the reason that real estate prices will eventually fall, because they remain constant in terms of actual dollar value.
I found an article detailing such:
http://www.iht.com/articles/2006/03/03/news/tulips.php
yes, the Herengracht index is an important lesson but people don’t want to learn. It shows that over time, homes will not appreciate more than about 0.5% over inflation. But over time, there will be severe busts and booms, as has been the case in Netherlands over the past 400 years. The original Herengracht Index starts in the early 17th century and runs until 1975. One of the problems with this (and Shillers work in general) is that inflation in the Greenspan/Bernanke era is far higher than the official CPI suggests - this is something that really IS different from the past 400 years.
The current irrational exuberance in Netherlands started after the 1980 housingcrash, from about 1985 median prices started climbing - at double digit rate from about 1990, single digit rate from about 2000. This the environment that Dutch boomers know: they have seen 25 years of non-stop pricegrowth. They have also seen that their government does everything you can imagine to stimulate RE investment and provide free put options for the housing speculators. And they evaluate foreign home prices based on prices they know from their own country, which are about the highest in the world - so everything is a steal to them (London UK area is certainly higher, but that’s not a whole country).
I don’t know where my earlier comment went — but it’s been more than an hour and it’s long gone. Somebody send it home if they find it, okay?
I think the Canadian stats are based on the country as a whole, not the bubble cities: lots of Ontario cities aren’t bad — Ottawa is cheap and so are London, Windsor and Hamilton — and Quebec has very little price inflation outside of Montreal, which isn’t bad either. The Maritimes are worse than they were, but they’re still cheap in the great scheme of things. Even Toronto, overbuilt with condos and subject to bidding wars, isn’t bad next to Vancouver, and it’s twice the size.
But Vancouver is a bubble market, as bad as LA; average SFH is 800,000 and that includes Surrey and other tragic suburbs. Ordinary bungalows in ‘good’ neighborhoods are now in the 1.5 to 1.8 million range. Infill McMansions are 2-3 million.
People get ‘creative’ with financing: they use HELOCs and liar loans and tweak lines of credit and are generally vewy vewy cwever on borrowed money, which they then parlay into pre-sale condos that they intend to flip.
Alberta is pretty bad too: Calgary’s second to Vancouver in prices.
Too funny about Tuscany, the wife and I JUST THIS MORNING were discussing where we hope to escape to when we retire. I was thinking France, and she mentioned Tuscany, with Greece as a third mutal choice. We already have a house in Croatia, but western Europe has better infrastructure, so we plan to sell, take our worthless dollars and go hide somewhere far far away! Of course this is 20 years from now… but fun, over coffee , chit-chat while we worry about the unraveling of the US economy and the long term effects.
Rusty - try the Mani reagion in the Peloponnese - towns like Gythio or Ariopoli, or even the tiny hamlet of Limoni (best taverna in the region).
Its a tough, rocky region, with unique ‘Tower Houses’ (used when the Ventians tried to colonise).
However, the entire population under 60 has moved to places like Melbourne (Aus) or Athens metro, leaving villages deserted by all but the very old (who get supplements from thier families in the likes of Melbourne, etc, to keep them in their dotage).
I haven’t been there for a while (last trip 1999), but even tourism hadn’t messed the place up. It’s too far from the beaten path, too hard to farm successfully, and has too few young people to service tourists.
But….{psst}…don’t tell anyone else!
speeding pullet, I just looked at the Italian craigslist for fun and came across this:
a little place to live in…Nuovo Messico, S.U.A. Hee hee, the bubble is global.
http://florence.en.craigslist.it/rfs/627595812.html
madonna, mia…
“All hail the Hopi-Tuscan cultural conglomeration!”
Bizarro…..
Hi speedingpullet:
I love that region in the Mani. Unfortunately, last year’s forest fires hit Aeropoli and Limani. I don’t know anyone who has been there since, but I know for certain that the fires were devastating in those towns.
So sad to hear it
I hadn’t realised that the fires had gone west/south of Sparti.
Definately in my Top 3 of ‘Places Where I’d Like To Escape Modern Life”…(the two others being the Orkneys, and Southern Utah)
Rusty - where is the house in Croatia? On the Dalmatian Coast? Ever rent it out? Love the Dalmatian coast.
I sailed the Dalmation Coast two years ago, Trogir to Dubrovnik, hitting the islands along the way. I agree, Left Behind, a fantastic place.
Bog!
Hi,
the house is in a small village called Matuli, about 20 minutes from Opatija. It is a mutual share with the sister in law - so we don’t rent it out. We just send the boy to go live there with his Grandparents during the summer. Giving mom and me more time to dream and worry over coffee alone in the mornings. Thanks all for the advice on where to consider. Be interesting to see where things shake out 20 years from now.
Maybe you can rent a villa next to The Maestro
nhz, Hondje: have there been any reasonable/reputable forecasts for price declines in the Netherlands? Any idea what kind of percent declines might be in the works? I know there’s already a ton of government support in one form and another for ridiculous price levels, but that can’t be sustained forever, can it?
it can’t be sustained forever, but you can bet that the Dutch government will gladly spend all their tax money on propping up the housing bubble. Nothing is more important in Netherlands than private real estate, especially the H-word (H= hypotheekrente aftrek, all mortgage debt is fully deductible from income taxes, yielding an effective 50% subsidy on all costs associated with buying/owning a home; the H-word has been banned from parliament for the next 3 years). So it could take many years before the real declines begin.
Dutch home prices are at a 300 year high, corrected for inflation! I would ask current home buyers: are you feeling lucky? Judging from historical charts for inflation-corrected prices, a 75% real price decline in Netherlands is in the cards. The nominal decline could be even bigger; but it might take 20 years or so, so no one will be able profit
Thanks, I appreciate the info. Didn’t realize it was that bad … so painful though.
And what happens when the Islamics start murdering people in the streets?
Oh wait…
(and this is from someone who _LOVES_ Dutch culture, I just wish you would WAKE UP, fight to defend and preserve what you’ve got, instead of surrendering like supine supplicants before the metastasizing hordes of 7th century degenerates..)
If things get bad enough, will it result in a one world government run by a one world central bank using a one world currency?
The “Globeuro?”
Im just askin
UK housing - “Sell everything!”
“…In a week that has seen mortgages offers withdrawn, ‘agreed’ house sales falling through, land transactions cancelled at the last minute and rumours of a large private housebuilder facing financial problems, the Dresdner man has spoken to a range of builders, estate and land agent and consultants:
One builder told us the best strategy is to “sell everything” to cash up. A high profile estate agent told us he believed there could be a five year downturn. Against this background, we believe private and quoted builders will be pressured by banks to sell assets. We’re hearing of one already….”
FT
http://tinyurl.com/6yt5j4
“…there could be a five year downturn.”
UK bubble recovery in 2013?
“Mike Duggleby, manager of Royal LePage Regina Realty, said Regina home prices are finally catching up with prices in Saskatoon and other major urban centres in Canada. ‘We’re just playing catch-up,’ he said.’”
I remember hearing these kind of statements, in the US, just as the market was starting to roll over a couple years ago. The main bubble areas had peaked and the areas that were lagging claimed that they were just “catching up”. The train has crested the peak, but the caboose thinks it’s still all uphill.
But everybody wants to live in Regina!
But that’s only because the guys misheard the name of the town.. They thought it started with a ‘V’…
Can anyone explain what this abnormally low sales prices ($111,000) means (average house in this area = $450,000)
http://www.zillow.com/HomeDetails.htm?zprop=20850413
Thanks! Appreciate your wisdom!!
Finally a buyer could qualify?
Possibly this sale represents transfer of the property back to the bank? Another possibility is a sale that keeps the property in the family. Start with the county records of ownership if you need to know.
I think that the champions in the housing bubble are the countries from eastern Europe. I’m originally from Moldova, a former part of USSR, one of the poorest countries in Europe. In the capital city Chisinau, the housing prices went up 8 times (Eight!) in the last 5 years. I’m attaching a link to an appartment for sale. It is a one bedroom, 180 sqft living space and priced at € 40800. And this is in a country with an average income of less than $1,000/year.
http://www.lara.md/?m=realty.detail&id=417525
Grim.
Being located within the Chernobyl fallout plume is certainly not a selling point.
some smaller towns in my area in Netherlands have already passed the 15x mark (over the last 15 years or so). I guess the average home there costs 25-30x average local income. The smaller a country (or area) is, the bigger the statistical exceptions …
it’s always the same story: prices are not related to local incomes but are pushed up by easy money (equity locusts, specuvestors etc.) from elsewhere.
Eastern Europe in general since enlargement in 2004. I have seen places triple in two, three years. Since their local currencies went up 25-50%, they even higher in dollar term than in Euro. Art-deco villas in Prague go for $1.5 mil and up. New suburban homes around the major cities are about 350K-750K. And average monthly income is about $1500 in Czech Republic. If economy will hit recession and unemployment rises again from present 5% to over 10%, majority of these homes will be sitting there empty for years.
Mirror, mirror on the wall…
Who’s gonna take this fall?
“A senior Cabinet minister has criticised banks for fuelling the housing debt boom and has suggested they have only themselves to blame. Agriculture Minister Jim Anderton said today that if house prices fell as much as the BNZ was warning, banks should look in the mirror.”
Can we stick to the “America is the worst” meme?
WORLD ECONOMIC OUTLOOK
Managing Housing Sector Boom-Bust Cycles
By Roberto Cardarelli, Deniz Igan, and Alessandro Rebucci
IMF Research Department
April 3, 2008
* U.S. house prices falling sharply, starting slide in other advanced economies
* Housing sector spillovers stronger in more developed mortgage markets
* May need aggressive monetary policy response to unusual house price trends
After several years of rapid price increases, the housing markets are turning down in several advanced economies, according to new IMF research.
The Changing Housing Cycle and the Implications for Monetary Policy
(caution: .pdf file)
This chapter examines how innovations in housing
finance systems in advanced economies over the past
two decades have altered the role of the housing sector
in the business cycle and in the monetary policy transmission
mechanism. It concludes that these changes
have broadened the spillovers from the housing sector
to the rest of the economy and have amplified their
impact by strengthening the role of housing as collateral.
This analysis suggests that in economies with
more developed mortgage markets, monetary policymakers
may need to respond more aggressively to developments
in the housing sector, within a risk-management
approach that treats house price dynamics as one of
the key factors to be considered in assessing the balance
of risks to output and inflation.
IMF chief says global intervention needed on credit crisis
Sunday April 6, 2008, 7:46pm EDT
Try this link (something wrong with the above). If this is no good, try Google (it’s a Reuters news article).
http://www.reuters.com/article/bondsNews/idUSL0634614420080406
April 6, 2008
Alan Greenspan: A response to my critics
G7 rescue plan dominates investors
Sun Apr 6, 2008 11:37am EDT
By Natsuko Waki
LONDON (Reuters) - Eight months after the credit crunch first swept the global market place, the contours of an unprecedented joint plan to fix the banking and financial system are slowly emerging.
Investors will hope this week to get a clearer idea of what this means when the Group of Seven financial chiefs discuss a range of drastic options to tackle banks and financial markets devastated by the credit crisis.
Policymakers who will gather in Washington on Friday and Saturday may also fire a warning shot at volatile currency markets as the dollar limps just a few cents away from record lows against the euro.
An expected interest rate cut by the Bank of England and monetary policy verdicts from the euro zone and Japan will also give insight into the nature of the international policy response to the ongoing crisis.
Steps being discussed by the G7-backed Financial Stability Forum include tax-funded bank bailouts to tackle a worst-case scenario, public mortgage repurchases and a sort of collective coming out of banks — simultaneous disclosure of financial positions using the same model.