Société Générale’s Albert Edwards discusses global housing prices and the ongoing economic recovery in light of coordinated central bank activity. I like the preface to his discussion:

• We have regularly explained that there are two types of market and economic commentator: those who will, if a trend persists long enough, embrace it and extrapolate the trend forward into the indefinite future. Therein lies the essence of great investment
disasters the market comes to believe a cyclical investment is actually a ‘growth’
investment and a whole array of assets end up massively overpriced going into a cyclical
melt-down. Then there is us.

•  Along with the Great Recession of 2007, in our working lifetime we have seen other examples of misguided extrapolative thinking that ended in the severe mis-pricing of assets ahead of a crash – technology stocks at the end of the 1990s, the emerging Asia miracle in 1997 and Japan in 1989 are all examples where there were clear bubbles about to burst. In each case, any attempt to warn clients was met with a steaming dollop of derision.

The charts and tables are rather instructive:


Worlds Most Expensive Cities


Housing Affordability Ratings by Nation

Source: The 2012 Demographia International Housing Affordability Survey
(See also the US National City affordability table after the jump)


Note that in the US, Florida is often used as an example if where prices have fallen so greatly as to produce enormous bargains. The data suggests otherwise. Miami for example has still yet to revert to pre credit bubble levels:


Rumors of Affordability in Florida have Been greatly Exaggerated

Source: The 2012 Demographia International Housing Affordability Survey



The biggest bubble in recent history is heading for the mother of all hard landings
Albert Edwards
Société Générale, May 3 2012


National US City affordability

Source: The 2012 Demographia International Housing Affordability Survey

Category: Real Estate, Valuation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “Is Global Real Estate Still in a Bubble?”

  1. Woof says:

    With mortgage interest rates <50% what they were in 2000 and <60% of what they were in 2006 a simple price / income measure seems like an obviously incomplete way to look at affordability.

  2. gman says:

    I agree that many metrics should be bench marked to take cheap financing costs.

    It looks like CRA and FNM sure have a global reach!

  3. Mike in Nola says:

    Haven’t been to any of these markets other than Vancouver, but from everything I’ve seen, it look like he’s right, although I do have to say that I think Texas hasn’t really bottomed out because of the current oil bubble. When oil dropped in 2008 after the last big bubble, there was some severe stress around here that was only relieved by the Fed and China driving up prices. My guess is we won’t see the final POP in some of these places until China finally slows down because they are dependent on selling raw materials to China, e.g. Australia, Canada, and the oil-dependent areas.

    BR: over the past few days have been seeing a lot of what looks like the mobile pages again.

  4. cognos says:

    So… in theory the “preface” above is wonderful. The problem with:

    …all examples where there were clear bubbles about to burst.

    Is that 90% of the people (pundits, economists, fin mgrs) who claimed to “call the recession” or “call subprime”. They were almost ALL calling it in 1993 or even 2003. Plenty made billions (and collectively trillions) on the run-up.

    The key to good investing is to make a decent run profiting from both BOOMs — and — BUSTs. Those who always see one side… are at best OK or maybe lucky. And if anything… its really only the “bulls” who have ever survived a longer term.

    Ton’s of “credit takers” for calling the housing bubble got most or all of it wrong. They were either wrong on timing (most). Or wrong on the mechanism (interest rate resets, ha!). Lots of them would’ve shorted USTs or something. But now they act all, “I told you it was a bubble”.

    So its important not to say… “it was clear”.

  5. mysterious eggs says:

    Austin real estate has been popping in the past year. quick sales and price increases everywhere. economic factors aren’t equivalent to 2000. I still think everyone has excess “cash” (read as liberally granted credit) that’s keeping consumption at the level it’s at.

  6. Obnoxio says:

    I think median houshold incomes are getting distorted upward by the necessity of single adults moving in with relatives thus increasing the number or persons per houshold. Housing is out of reach of most single workers in the US in my opinion.

  7. DeDude says:

    For most people affordability is about how much of their income has to be dedicated to the mortgage payment. For that issue the most useful metrics would be median monthly payment (on a median prices house with a standard loan and current interest rates) as a % of median monthly income. It would be hard to get that data, so maybe some kind of correction factor based on interest rates (and their effects on monthly payments) would be the best approximation.

  8. VennData says:

    Edwards has been wrong for three years. He needs to start thinking about another position in the fortune telling industry.

    Ignore this guy”s guesses and you will do fine. Markets don’t operate on the promise of ‘having to revert.’ They have taken a huge hit, who’s to say it hasn’t bottomed? And that’s all he has some ephemeral desire to want more reversion. Absolutely un-empirical and a waste of ink. How does he know. Ask yourself how do any of them know what will happen?

  9. patfla says:

    @DeDude – there’s a page at the Federal Reserve that shows US household debt service ratio by quarter.

    My first reaction to these numbers was they’re interesting but the signal wasn’t (and isn’t) real clear to me.

    The leftmost column is DSR which is mortgage and consumer debt. Consumer is credit cards but I’d guess that it doesn’t include student loans for 20-somethings – who are especially hard hit.

    According to the chart, 11q4 DSR, at 10.88, is the lower it’s been since the 90s (seems hard to believe).

    I think some disaggregation is in order. For one, strip out the top 1% and then look at these numbers again.

  10. blackjaquekerouac says:

    this is a very odd “cycle” indeed. if the US dollar starts smartly trending higher i agree “real estate will start reverting to its post bubble mean”…and lower. Canada is DEFINITELY in a housing bubble…and should the Chinese Communist Government collapse I think you’ll see all sorts of “wild stuff” in the real estate sector. Europe clearly is on sale…both now and for some time. They will be raising capital…if not outright nationalizing various industries. This “loss of demand” (read “MONEY”!) should move the impaired assets of USA real estate to outright fire sales. I think the catalyst will be the current President’s tumbling poll numbers…we shall see.

  11. Sock the Mighty says:

    I live in one these severely unaffordable markets, and there doesn’t seem to be any end to madness.

    I know people in their 40′s who have happily taken out 40 year mortgages to buy a pretty unremarkable house. Based on current life expectancy, they will likely be dead before their house is paid off. But they don’t see a problem with this, after all housing is on a non-stop upward trajectory!!

    I ask them how can prices continue to go up if they had the maximum amount a debt they could possibly take on to afford it? But no one seems to have an answer for that. They just say I’m being naive and that housing prices always go up, up, up.

    We’ve become a nation of indentured servants…I mean seriously, what’s next, multi-generational mortgages?

    All I know is this will end badly.

  12. MikeG says:

    Australian housing costs are even more excessive than they appearin the chart, relative to US cities, as interest rates are higher and there is no mortgage interest deduction.

  13. [...] Where stands the global real estate bubble?  (Big Picture) [...]

  14. Blissex says:

    «I know people in their 40′s who have happily taken out 40 year mortgages to buy a pretty unremarkable house. Based on current life expectancy, they will likely be dead before their house is paid off. But they don’t see a problem with this, after all housing is on a non-stop upward trajectory!! [ ... ] We’ve become a nation of indentured servants…»

    That’s exactly the plan: the idea is that 70% of voters are middle aged or retired property owners, most of them women (who get to own almost all property either from divorces or as inheritors as they outlive men), and they vote for politicians that promise them effortless luxurious retirements based on never ending tax-free capital gains because of ever higher property prices.

    Since capital gains on property are purely redistributive, when a property doubles in price the capital gain is necessarily in its entirety at the expense of someone else: it is pure class war, where the rentier property owners take a chunk of the income produced by the working non-porperty owners.

    What greedy middle class middle aged rentier property owners (mostly women) think is that it is fine, because it is at the expense of the 30% of losers who are single or divorced (mostly men) non-property owners.

    What they don’t realize is that if house prices double, the 100,000 property gets a 100,000 tax-free capital gain for them, but the 1,000,000 property gets a 1,000,000 tax-free capital gain, so almost the entirety of the gain goes to the richest rentier property owners, and the small and middle rentier property owners just carry water for those much better off than themselves.

    But they are all hypnotized by their greed and desire to screw as many tax-free capital gains as possible from loser, working, non-owners, without realizing that they are bein screwed by the bigger owners.

    But the best con is always the one in which the marks think they are in on the con, and someone else is the mark.

    «I mean seriously, what’s next, multi-generational mortgages?»

    Of course, and these have already happened in some countries where the political demand by middle aged, middle class rentier property owners has driven politics to push property prices ever higher.

    «All I know is this will end badly.»

    Eventually all Ponzi-style schemes unravel when the pool of available buyers is exhausted.

    Many countries are trying to delay the inevitable by replenishing that pool by allowing waves of immigrants as new entrants in that scheme, or at least as 4-to-8 to a room rent payers, with middle aged middle class rentier property owners as the new slumlords.

    But that won’t work for long.

  15. The Realty Bubble Monitor tracks Price/Family-Income on a monthly basis. I also track an affordability index but it goes unpublished ‘cuz it infers the USA median home price should be $400k.

    Using the conventional measure, USA homes are currently $19k (12%) underpriced. New Homes are $3k (1%) underpriced.

    Internationally, Australian homes are $173k (76%) overpriced. Canadian homes are $79k (28%) overpriced. UK homes are 112% overpriced.

    For all things wrong with USA fundamentals, housing is indeed not one of ‘em. Much of the rest-of-world continue to fund their economies with the realty ATM.

    RBM chart:

  16. ilsm says:

    Price income ratio from the ye olde Scotch sage: 2.5 to 1.

    6 to 1 is no good.

    Marketers in the US have known since the depression that people think in terms of monthly payment.

    Ye olde Scotch sage says: marketers are right people think wrong.

  17. [...] Global property: still in a bubble? [...]