October 28, 2006

I'm reading a lot of stories about the American housing crash here in England... When will they start wondering "will it happen here?"

Since the debt-and-speculation-fueled housing ponzi scheme went worldwide these past few years, not just in the US, wouldn't you expect to see the people of the world collectively coming to their senses, with the US as always leading the way?

Housing prices became even more detached from reality in places like Ireland, England, Wales, Spain, Dubai, New Zealand, Russia, Sweden and hell, even China.

Now that the US story is getting massive press around the world, I would expect a collective wake-up call, where people stop in their tracks, look around at the housing madness in their own town, and that little element of doubt should quickly become a big nugget of fear.

And then the requisite rush for the exits.

In addition, the US housing and GDP crash affects everyone, since our consumer-based economy serves as the world's economic engine. Job losses caused by the US slowdown in themselves are enough to stop the housing madness.

But in the end, what'll blow the world's bubble is the change in mindset, the realization that home ownership costs should not be and cannot be two times rental costs.

People of the world, get ready. Housing panic is here.

31 comments:

jrinlv said...

"...the realization that home ownership costs should not be and cannot be two times rental costs." I always thought that the fair price of a house should be approximately 10 times the yearly rent. What am I missing here? Please advise. Thanks.

keith said...

if your monthly ownership costs are $2000 and the monthly rental income that could be generated by the property is $1000, you have a problem

your rule may be correct on an annual basis

Anonymous said...

The real problem can be found at www.iamfacingforeclosure.com - "big news" involves Kiyosaki

Anonymous said...

The ratio of house price to rent is about 400 in Bangalore, India. The US/UK figures look very reasonable in comparison. And this inspite of lending rates of above 10%. If there is a moon-sized bubble, it is in India.

pmd said...

Whoa, now I know why I tune into HP everyday... sometimes I learn a little, today I learned A LOT!

I had no idea housing price insanity could reach such levels, but it's well beyond comprehension in GB/Ireland, Spain and South Africa.

I know a South African dude who just stopped renting to buy pretty much the same place at a vastly more expensive cost by my estimation. I didn't understand his thinking until now...

Tom DC/VA said...

"The ratio of house price to rent is about 400 in Bangalore, India. The US/UK figures look very reasonable in comparison."

The housing markets of US/UK, with populations dominated by urban/suburban middle classes, and of India, with a population dominated by dirt poor rural farmers, are probably not comparable.

Anonymous said...

..unless we're on our way to becoming a nation of the dirt poor.

jmf said...

hello from the only country that has no bubbel (germany)

here is a good summary from dbresearch that shows all the main bubble areas in comparisson

http://immobilienblasen.blogspot.com/2006/10/db-research-usuk-ie-esp-fra-dk-ger.html

keith said...

http://tinyurl.com/u9gfq

here's the link to the deutsche bank report - "US house price declining - is Europe next"

key word: contagion

Ireland is seen as the riskiest European market, and I agree. When I visited Dublin I of course checked out real estate prices. I'd look at a house and try to guess its true value based on what kind of rent it could earn.

I was off in some cases by a factor of 10. Hands down the most overvalued real estate I've ever come across - even worse than California.

Why? Jobs. Income. People in Ireland are not multi-millionaires, yet their home prices would make you think they earned the big bucks.

Ireland will crash and crash so hard it'll make the potato famine look like a bad day.

Tom DC/VA said...

"Ireland will crash and crash so hard it'll make the potato famine look like a bad day."

Oh, don't be silly. Nobody will starve - Ireland is a well-off country with a modern economy, not a backward corner of England's empire that is overly dependent on one crop. The potato famine wasn't a speculative bubble, you know.

jmf - why no bubble? Is the lack of a bubble due to low home ownership rates? How does including/excluding the former East Germany affect the numbers?

keith said...

I'm saying when Ireland crashes, it may take years and years to recover. Families will be put out on the street. Bankruptcies will be commonplace. And yes, people will go homeless and hungry.

But then again, that potato famine was a really bad situation, so perhaps I over-reached. But you get the jist

Alan P. said...
This comment has been removed by a blog administrator.
VFRmonkey said...

I wanted to buy a little place in Ireland years ago, but didn't have the money and couldn't get my family to go in. This was '87-ish, and houses were cheap for several years after that (not in Dublin, but in counties close by) Everything else was so costly in IE, but houses amazingly cheap.

Last few times I was there, desperate fixers had outlandish price tags, and I shudder at how expensive reno costs would be, plus the gov't is permit-crazy there, too, I heard the Irish discussing the disconnected prices and folly of kids stretching to meet mortgage payments. This was early in their bubble, and I haven't been there in 3 years so my info is old, but the Irish were paying more attention than the average American.

Dogcrap Green said...

You need to update your chart.

RENT SOARED IN 2006

Anonymous said...

dogcrap green:
"Rent Soared in 2006"
Landlord read the same report and tried to raise our rent. We simply moved for a better deal. Had a hard time getting an exit walk-thru appointment - so many other people were doing the same thing at the same time. Now I see (3 months later) he has big signs, balloons and "flexible lease" banners out front. I frequently drive by 4 other rental properties and it looks like the same deal for them as well. Maybe there was a rent increase blip due to media suppositions, but I don't think it ever really materialized. It certainly didn't last.

SeattleMoose said...

My wife was talking to a friend in Warsaw the other day and was told that prices have doubled just since the summer of 05. The bubble is everywhere.

My sister lives in AUS and prices downunder are headed back down (peak was 2004). She and her husband (a builder) essentially were "fixer flippers" and made a ton of money on about 6 houses which they sold in 2004 "at peak". They are both in their 40's and are both retired now. Got an email and they say it is becoming a "blood bath" down there as everyone runs for the exits.

Anonymous said...

ref: Anon 10/28/06 - 7:00 am

Here it comes, this is what we were being set up for all along. "Casey's" site is nothing more than an infomercial. A clever scam that even duped a few non-fact-finding reporters. Even included a shill who just happened to find the myebid auctions. Puhlease.

tim73 said...

Oh boy, His Majesty's subjects are in big trouble! :) Serves them right, those uppidity Brits and their disgusting English cuisine! :) Maybe you English lads could ask Germans to bomb London again?

Anonymous said...

tom dc/va said

"The housing markets of US/UK, with populations dominated by urban/suburban middle classes, and of India, with a population dominated by dirt poor rural farmers, are probably not comparable"

The cities of India are dominated by urban populations as well. As for dirt poor rural farmers, atleast they are not in debt unlike folks in the US. As for UK, it is a has been country living on past glory and we in India see only a downhill for the UK economy

Anonymous said...

It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a £15,000,000 starter flat in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.

Tom DC/VA said...

"As for UK, it is a has been country living on past glory and we in India see only a downhill for the UK economy"

How has "past glory" sustained the UK over the 58 years since they jettisoned India? Let alone made them substantially richer?

http://eh.net/hmit/ukgdp/

Year Per-capita GDP at constant (2002) market prices
(pounds per person)
1947 5,271
2004 18,544

Don't confuse hate with thought.

Concerned said...


It's a new paradigm, and everybody who doesn't buy, now, will be priced out forever. Anybody who does buy will be rewarded with a lifetime of riches, as their property will continue its 30% yearly price increase.

Renters, and anybody born in a future generation, will not be able to afford a £15,000,000 starter flat in 15 years. They will live in tent cities, and Hondas.

This asset bubble is different than all of the others - it will never slow down, or pop. The gains are permanent.


You gotta be kidding right ?

If this happens then a carton of milk will cost 10,000 pounds a litre.

Dream on buddy. The asset deflation is on its way, and it's global......the UK and Ireland are worse off than the US.

Disgorge! said...

Renters, and anybody born in a future generation, will not be able to afford a £15,000,000 starter flat in 15 years. They will live in tent cities, and Hondas.

Tents can be quite comfortable. I know people (researchers) who lived in the bush in Africa for years in tents -- very comfortable. More on tent living.

Disgorge! said...

Really nice tents.

foxwoodlief said...

Lets see Keith, what is new here? How many times have I and other posts I've read try to get people to look beyond American to see what others where payiing for homes and rent? And as so many statistics show, America isn't even close to the top of the heap.

Yes there are localized markets that are totally out of control and Yes many people's income haven't kept up with the rising costs and part of the problem is expectations and the size of new homes. I guess $200 a sq ft is okay if they house is only 800 sq ft instead of 3,000 sq ft, but still, what isn't evident in those overseas numbers is the size of those properties! Many are very small, old, inefficient, and need a lot of updating.

As for the questions about Germany? The area I lived in in Western Germany (the Mosel river valley) has some very expensive property and some very cheap compared to 1988. Why? One, economy. When the US closed a base there (Hahn) thousands of AF personnel left leaving lots of vacant flats. Then the wall came down and a lot of easterners came to rent and since there are no jobs prices went down. Americans typically paid twice to three times what a german would pay. Go to the industrial areas, the large cities of W. Germany and prices are comprable to other European cities. Get out in the farm belt and prices come down, especially if far from good employment (Just like here). Go east and bargains abound because there are no jobs. Prices have stagnated in most of Germany but didn't fall except in areas that significant job losses. I agree that adding E Germany's housing supply to the numbers significantly lowers the average price for Germany.

And people forget a lot of other countries do not have fixed mortgages for 30 years (Canada included) and are much more sensitive to interest rate hikes but on the other hand, Germany for example, makes it difficult to extract equity (you pretty much have to sell) and most people buy to live in but Germany also has one of the lowest home ownership rates in Europe.

And then there is good old England. Hello? People make squat and pay far more for houses, goods, services, etc than here. I can see paying $2,000 a month if your food costs, transportation costs, insurance, etc is low or you have no debt, but in England try going out to eat at a resturant! Or buy a coke on the train! Everything is expensive there!

Is America leading the way? Maybe. Maybe people will wake up and recognize homes are to live in not to invest in. Maybe people will buy what they can afford (but remember inflation makes us hedge by buying more than we can afford now in the hope we it will seem cheap 10 years from now).

Politicians need to wake up. We need to eliminate the income tax on businesses that build new factories and create new jobs. We should reward investment in America instead of China. If we had a law that said all profit made off goods manufactured in the USA is tax free and all profits made on imports was taxed I think we'd see factories opening up all over America.

Anonymous said...

i love it when kieth uses "anonymous" to argue

Anonymous said...

me too, he is a fool

Anonymous said...

what an idiot you two are. you hav no proof it is only kieth talking

Anonymous said...

The new paradigm post is IN JEST folks. I've seen the exact post here multiple times and on a few other housing bubble sites. It's not anyone who really believes it, so relax

Anonymous said...

Hi from bubblicious Moscow, Russia. (almost 100% yoy appreciation!!!)

Bubbles in some of the post-soviet states are COMPLETELY different from other places because they're caused by excess liquidity (in Russia, think "through-the-roof oil and gas prices") BUT NOT CREDIT BUBBLE. period. Most of the purchases are done in cash or with big down payments. SO, when these bubbles pop, realty industry/homebuilding people will suffer but there will not be a foreclosures / reason to sell. After all, if i saved $70k and bought a $150k flat with it, and it falls to $100k or even $80k, then i'm idiot but there's no reason for me to end in foreclosure. Yes, we are a backward country and have NO RE-FI and home cash-out ATMs too. ;-)

So, housing crash will not bring Russia down or even be noticed by most of its population. Oil prices will.

Droid said...

..unless we're on our way to becoming a nation of the dirt poor.

Well, globalization works that way also.