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Global Real Estate Boom

Posted By Barry Ritholtz On June 17, 2005 @ 8:00 am In Real Estate | Comments Disabled

Earlier this week, the NYT [1] discussed how the Real Estate boom had become a global phenomenon [2]. Picking up that meme, both the WSJ [3] and The Economist [4] jump on board:

The WSJ [3] 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 [4] 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 [5] that housing isn’t a bubble (yet [6]), I am cognizant of increasingly ominous warning signs [7].

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

click for larger graphics
Csf103_2 [8]

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 [9]

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 [10]
Charts courtesy of The Economist [4]

 

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 [4]
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 [3]
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
>


Article printed from The Big Picture: http://www.ritholtz.com/blog

URL to article: http://www.ritholtz.com/blog/2005/06/global-real-estate-boom/

URLs in this post:

[1] NYT: http://www.nytimes.com/2005/06/12/weekinreview/12lohr.html?ex=1276228800&en=3aea40fd0c8705d0&ei=5090&partner=rssuserland&emc=rss

[2] global phenomenon: http://bigpicture.typepad.com/comments/2005/06/the_global_real.html

[3] WSJ: http://online.wsj.com/article/0,,SB111887057779860749,00.html

[4] The Economist: http://www.economist.com/printedition/displaystory.cfm?story_id=4079027

[5] contrarian position: http://bigpicture.typepad.com/comments/2003/09/contrary_indica.html

[6] housing isn’t a bubble (yet: http://biz.yahoo.com/ts/050526/10225437.html?.v=3

[7] ominous warning signs: http://bigpicture.typepad.com/comments/2005/05/real_estate_wra.html

[8] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/csf103_2.gif

[9] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/csf107_2.gif

[10] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/csf110_2.gif

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