This article in the Economist will be seen as the most spot-on, well-written and timely article written about the current global housing bubble. Reminds me of the Fortune magazine dot-com cash-burn cover story right before the implosion there.
Read this article again, and you'll be ahead of the crowd, and duly warned.
The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops
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.
December 17, 2005
In case you missed it - the most important housing bubble article you'll ever read - from the June 2005 Economist magazine
Subscribe to:
Post Comments (Atom)
23 comments:
Devestement - denial is just one of the first stages people will go through with this bubble:
1) Denial (people chose to look the other way when the first bubble reports were coming out)
2) Anger (people are mad at the media, at my blog, at the world as prices drop and they didn't sell in time)
3) Bargaining (I'll sell once prices come back up - it can't drop 50% can it?)
4) Depression (prices plummet, retirement fund is ruined)
5) Acceptance - sell it for what I can get for it and move on
This is sooooooooooo 2001 all over again - NASDAQ and .com stocks now being condos and 2nd homes of course
1990 in denver colorado - oh, man, what a mess. 20% of homes people just walked away from - HUD homes everywhere, no buyers, only sellers, 50% decline in condo prices, just a mess
But it sure was a great time to buy (at the low)
I expect similar situation in some cities in 2008
Excellent article. I wish it would have touched on investor psychology.
Bubbles in any market are similar to a giant tornado that comes through and sucks everything upward. There is so much momentum and gravitational pull towards the tornado, that everything and everyone (down to the baker, butcher and barber) gets sucked in. People panic to get in because they think there is no stopping it, and this fuels the bubble even more.
The velocity in turnover (or volumes of trades) can become astounding, as people hurry and buy something as soon as they have sold what they own. Or as we see with second, third, investment homes, etc., people buy and keep buying before they have sold their first property (eg. using zero down mortgages, no income verification etc). "Panic" to get in is the key word. Look at Nasdaq 1999 to 2000 for example of this panic buying.
Once the tornado flurry (bubble) reaches a certain point, it can't continue to grow at double digit % rates. It's like when you are blowing air in a big balloon, each big breath you put in doesn't do much to increase the size of the balloon. People see the growth % drop, so they slow down their buying frenzy. This leads to loss of velocity, volume of trades, and less turnover--and the bubble deflates.
I don't think we'll see the RE market crash like the Nasdaq did, mainly because people won't be getting margin calls from their mortgage banks. The margin calls fueled a downward sucking spiral in the stock market, and people panicked to get out. However, in RE, we may see 10% drops per year for the next 3 to 5 years, until earnings (rents) are closer in line to borrowing costs (mortgages). Of course, some parts of the country will be better off and some will be worse off than the 10% drop per year.
dnally - nice post. the bottom line is that housing prices WILL get back in line with rents - just as stocks with PEs. And you're right - we likely won't fall 50% one year. But we will get back in line. So that may be 10 years of 5%, or 5 years of 10%...
on psychology - here's basic herd mentality behavior defined from wiki. And remember - those that pull out of a market early (i.e. at the top or near it) or speak against the bubble (i.e. this site) are seen by the masses as irrational.
I love being irrational.
____________________________
In the case of stock market bubbles, the optimal behaviour for an individual may be to do what everyone else is doing, because even though everyone knows that they are in a bubble, until it bursts, most profit is to be made by staying in the market. In this case the term "herd behaviour" is relatively appropriate, because the "collective" behaviour emerges from unco-ordinated individual choices. Interestingly, though the behaviour of the group is evidently irrational, the behaviour of the individuals that cause it is rational at least in the short term, though it does show some abandonment of risk aversion, as the crash usually occurs without much warning. These phenomena are now much better understood as a result of investigations in experimental economics and behavioural finance, particularly by Nobel laureates Vernon Smith and Daniel Kahneman.
You have a great website here, and I'm going to tell all my friends about it.
I have been following a site now for almost 2 years and I have found it to be both reliable and profitable. They post daily and their stock trades have been beating
the indexes easily.
Take a look at Wallstreetwinnersonline.com
RickJ
Comment
Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my today's interest rates site.
Good luck!!
Your blog I found to be very interesting!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a arizona petroleum engineering job sites
site.
Come and check it out if you get time :-)
Best regards!
When I go blogging, it often ends up a fruitless journey. I often think I'd do better if I just stuck with my own real estate sites ... and then I come across a blog like yours, and it make the trip worthwhile. Thanks. Visit my site if you have a chance.
Dear webmaster, good Blog Site with a lot of intersting and not so interesting comments I would say!
If you have a moment please feel free to visit my site http://www.easy-forex-broker.ssr.be
free froex trading learning
Hey, you have a great blog here! I'm definitely going to bookmark you!
I have a stock market symbols site.
Come and check it out if you get time :-)
Greetings.
Hi Blogger, I found your blog quite informative.
I just came across your blog and wanted to
drop you a note telling you how impressed I was with it.
I give you my best wishes for your future endeavors.
If you have a moment, please visit my stock newsletters site.
Have a great week!
Hi Fellow! I was just searching blogs,and I found yours! I like it!
If you have a moment, please visit my stock market investor site.
Good luck!
A fantastic blog yours. Keep it up.
If you have a moment, please visit my bad california credit mortgage refinance site.
I send you warm regards and wish you continued success.
Your blog I found to be very interesting!
I just came across your blog and wanted to
drop you a note telling you how impressed I was with
the information you have posted here.
I have a stock and bond syndicates
site.
Come and check it out if you get time :-)
Best regards!
Hi there Blogger, a real useful blog.Keep with the good work.
If you have a moment, please visit my wholesaler site.
I send you warm regards and wishes of continued success.
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my secured credit cards in canada site.
Have a great week!
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my secured credit cards canada site.
Have a great week!
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my second mortgage interest rates site.
Have a great week!
A fantastic blog yours. Keep it up.
If you have a moment, please visit my second mortgage after bankruptcy site.
I send you warm regards and wish you continued success.
I am here because of search results for blogs with a related topic to mine.
Please,accept my congratulations for your excellent work!
I have a bad credit home mortgage site.
Come and check it out if you get time :-)
Best regards!
This is an excellent blog. Keep it going.You are providing
a great resource on the Internet here!
If you have a moment, please take a look at my savings bond calculator site.
Have a great week!
Post a Comment