Global Property Bubbles: Not Bursting

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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