Global Real Estate Boom

Friday, June 17, 2005 | 08:00 AM

Earlier this week, the NYT discussed how the Real Estate boom had become a global phenomenon. Picking up that meme, both the WSJ and The Economist jump on board:

The WSJ notes the rapid price appreciation:

"Over the past three years, measures of housing values are up 48% in France, 63% in Spain and they've nearly doubled in South Africa, according to data gathered from these markets from sources including the Bank for International Settlements, Economy.com and The Wall Street Journal. In just the past year, prices have risen 19% in Hong Kong and 48% in Bulgaria. They've also boomed in China, Australia and the United Kingdom, though prices are now showing signs of slowing in some markets like Australia and the U.K."

"I'm worried about a world recession when this thing finally unravels," says Robert Shiller, a Yale University professor and author of the book "Irrational Exuberance."

The Economist takes it a step further, and declares it a bubble about to burst:

"NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history."

While I have staked out the contrarian position that housing isn't a bubble (yet), I am cognizant of increasingly ominous warning signs.

Note the parallel between the US (2005) and Japan (1989):

click for larger graphics
Csf103_2

We know that both Australia and the UK prices have topped and started to withdraw; That's visible in the ratio Sale prices to Rents (but not in the US):   

Csf107_2

Note that this 3rd chart is particularly misleading -- the year-over-year change in price increases shows housing markets are cooling off -- not super-heating:

Csf110_2
Charts courtesy of The Economist

 

Regardless, of your perspectives as to bubble or no bubble, this all makes for interesting reading. I find this WSJ table of global real estate appreciation absolutely fascinating:

STICKER SHOCK
Home-price appreciation for 27 countries over the past year and three years.

Rank Country One-Year Change Three-Year Change
1 SOUTH AFRICA * 28% 95%
2 CHINA (Shanghai)*  27% 68%
3 SPAIN * 17% 63%
4 AUSTRALIA * -3% 56%
5 NEW ZEALAND ^ 16% 55%
6 UNITED KINGDOM * 11% 50%
7 FRANCE * 15% 48%
7 IRELAND ^ 13% 42%
9 CANADA * 10% 31%
10 UNITED STATES * 11% 29%
11 THAILAND * 13% 29%
12 SWEDEN * 10% 27%
13 HONG KONG * 19% 27%
14 HUNGARY(Budapest)* 5% 27%
15 FINLAND * 6% 23%
16 EURO AREA * 7% 22%
17 GREECE (Ex-Athens)* 4% 22%
18 KOREA * -2% 20%
19 NORWAY * 10% 17%
20 DENMARK ^ 9% 17%
21 TAIWAN * 10% 15%
22 NETHERLANDS * 5% 11%
23 SWITZERLAND * 1% 8%
24 PORTUGAL * 0% 3%
25 GERMANY * -3% -5%
25 JAPAN * -5% -16%
26 BULGARIA * 48% NA
27 INDONESIA ^ 5% NA
*Based on latest available statistics updated through fourth quarter 2004 or first quarter 2005.

^Based on statistics updated between second quarter and third quarter of 2004. Percent changes are calculated using city or national indexes of residential property prices, home prices, existing home prices or prices per square foot.


Sources: Bank for International Settlements, Economy.com, CEIC, and Wall Street Journal Research.

 


Sources:

The global housing boom
In come the waves
The Economist, Jun 16th 2005
http://www.economist.com/printedition/displaystory.cfm?story_id=4079027

Amid Low Rates, Home Prices Rise Across the Global Village
Armed With a 'Saving Glut,' Investors Chase Returns;
Londoners Buy in Bulgaria, Bangkok Market Is Hot -- Again

Jon E. Hilsenrath and Patrick Barta
The Wall Street Journal, June 16, 2005; Page A1
http://online.wsj.com/article/0,,SB111887057779860749,00.html
>

Friday, June 17, 2005 | 08:00 AM | Permalink | Comments (9) | TrackBack (0)
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Comments

Does this global data put a stake in the heart of "localized bubbles?" Sure, local job markets/economies and land use regs play into this, but low rates cut across the board. While Peoria isn't NYC, Peoria real estate has changed to reflect 5% mortgages, i/o mortgages, 125% financing etc. This stuff is national, and apparently global as well.

I didn't comment on it, but during your "roundtable" debate the other day you seemed to give up considerable ground on your contrarian position. To wit "..."I suspect that may end badly also" in reference to real estate.

While it made me laugh it is certainly consistent with your philosophy of being able to adapt your thesis. I applaud that.

What's just as funny though is that I find my "bubble" position giving ground. I am wrestling with the idea that rates are low and may stay low for an extended period of time. I thought Howard Simons' article answering Greenspan's "conundrum" was terrific (does he write anything that isn't?). Though, I did have to cross reference his article with some other material just to digest the bond talk. Geeks!

While I waver, at the end of the day my gut (which I don't trade on) continues you tell me that Mr. Market won't stand for this many people being on the right side of this trade. The market likes to go where it's going with the least number of people along for the ride.

We'll all stay tuned...

Posted by: Andy Nardone | Jun 17, 2005 9:35:15 AM

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