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Global Property Bubbles: Not Bursting

by: Felix Salmon September 04, 2008    
Felix Salmon

Felix Salmon

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The housing bubble was not confined to the United States. If anything, the bubble here was later and smaller than in most of Europe. So it's hardly surprising that house-price declines are not confined to the US either. According to the latest Knight Frank survey, the year-on-year decline in New Zealand house prices is 2.2%; in Germany it's 2.5%; in the UK it's 3.9%; and in Latvia it's a whopping 24.1%, even bigger than the USA's 16.8% fall.

But more interesting, to me, is that globally, house prices are still rising, which is not necessarily what you'd expect to see in an article headlined "House price crash goes global":

Globally, the rate of house price growth fell to 4.8% in the second quarter of 2008, down from 6.1% in the first quarter of the year.

Yes, I know it can be confusing with all those negative words, but house prices are up almost 5% year-on-year, even including the US. (I'm not clear how the countries are weighted, though.)

Just check out some of the price rises at the top of the table. Spain, astonishingly, is up, by 2.4%; apparently "price falls have been concentrated in the coastal resorts and among new developments in the larger cities". (Sounds a bit like Merced, where the new developments have born the brunt of the housing crash.) South Africa is up in nominal terms, by 3.8%, although that's slightly negative in real terms. Canada's up 4.8%, Italy's up 5.4%, and even Belgium is up 6.9%.

And then: Hong Kong, up 25.1%; Russia, up 26.5%; and both Bulgaria and Slovakia rising more than 30% year-on-year.

How come all these markets aren't crashing like the US? I think it's simple: They had the bubbles, they just didn't have the atrocious underwriting.

On the other hand, just because mortgages are solidly underwritten doesn't mean an overheated housing market is unable to fall dramatically. But I do think it means that overheated housing markets are likely to fall more slowly, since there are so many fewer forced sales. If there were some way of shorting house prices in places like the UK, Spain, and Russia right now, I'd do it. They pay-off might not be immediate, but it's likely to be large.

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This article has 4 comments:

  •  
    Sep 04 05:47 PM
    The problem with home prices indices is the variety of ways in which they are measured. Compare the S&P Case-Shilller Home Price Index and the National Association of Realtors existing home median prices for example. The first shows year-over-year home price declines north of 15% while the latter index shows prices down around 7% y-o-y. Then there is the Office of Housing Enterprise Oversight (OFHEO) home price index and ...., each index with its own take on what is happening with prices.

    In other words, even in a well tracked market like the US, data varies wildly. I personally have found the NAR and OFHEO numbers to be sadly lagging and way too volatile to offer any real benefit in understanding what is happening with prices but that is the topic of another article.

    Now... take that situation globally and you have a real can of worms. For example, housing prices in Canada have stopped going up at double digits and just begun to experience y-o-y declines. But one report (Douglas Porter of BMO Capital Markets) shows a very convincing chart indicating the Canadian prices perform almost identically to those in the US with a 2-year lag.

    Globally, home prices may be rising but given the fact that median home price data is a poor indicator of real price dynamics and that most market are measured by this lagging indicator, I consider this global number suspect, especially considering how recently some markets (like those in Canada) have begun to correct.
    Reply
  •  
    Sep 04 05:51 PM
    Anyone who thinks the housing market in the US is approaching a sustainable bottom, may be sadly mistaken based on the charts and info in this recent report (see tradesystemguru.com/co.../ )
    Reply
  •  
    Sep 04 08:00 PM
    The comment on the consistency of underwriting is so very crucial to more stability in the housing market. Underwriting cannot be like an accordion...expanding and contracting ... this was at the heart of the US problem...

    As for stabilizing housing, any positive , prudent re-definition of the underwriting foot print will accomplish this...

    Lastly, we fix housing and we fix the economy....
    Reply
  •  
    Sep 05 08:47 AM
    short spanish banks, they own the houses...
    Reply
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