Dr. Housing Bubble — Global housing bubbles unite

Economic history is a fascinating subject. Yet in our modern day of instant news and second to second market analysis, it seems like the media is bent on skimming over on only what is going on at the moment. Even the deepest financial crisis since the Great Depression is now gone into the vortex of cultural amnesia. What is interesting however, is that many countries around the world being incredibly different culturally, went down into the rabbit hole of housing mania as well. If you ever think Southern California home prices are outrageous, you need only look at Northern California. If you live in the Bay Area, all you need to do is look at Canada. There has never been, from all the history I’ve reviewed, of a universal and unified housing bubble that touched nearly every continent at the same time at such a big magnitude. Let us take a trip around the world and see what other housing markets are doing.

Dr. Housing Bubble
Global housing bubbles unite: How easy debt has created the first ever worldwide housing boom and bust. The busted, the leveled, and the booming.

Bill McBride — Research: Loan-to-income guidelines could have "forestalled much of the housing boom"

From the paper: Intuitively, a loan-to-income constraint represents a more prudent lending criterion than a loan-to-value constraint because income, unlike asset value, is less subject to distortions from bubble-like movements in asset prices.

Calculated Risk
Research: Loan-to-income guidelines could have "forestalled much of the housing boom"
Bill McBride

Dr. Housing Bubble — This time it is not different – Canadian housing prices reach apex and set for deep fall

Being inside a bubble creates an interesting atmosphere. To a certain degree logical voices from outside of the bubble need to speak up to recognize what is rather obvious yet lost for many within the bubble. There is no bigger housing bubble than the one currently happening in Canadian real estate. Not only is the bubble raging it has far surpassed what the US housing bubble reached at its pinnacle. Those in the housing bubble of course are intoxicated by the elixir of easy money. After all, simply sitting in your condo and having it go up $50,000 or $100,000 in a year for not lifting a finger sounds like a good investment. This happened all across the US from condo happy Miami, Boston, and Chicago to housing crazy California and Nevada. Yet the echoes are the same when one points this out. It is truly different here. The only true thing is that human psychology driven by unfettered greed creates bubbles over and over like the sun rising. Taking a look at the Canadian housing market, you realize that not only is a nationwide bubble in full force but some cities like Vancouver and Toronto are extraordinarily overpriced.

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This time it is not different – Canadian housing prices reach apex and set for deep fall.  Foreign money speculation and crowding out local Canadian families. Canadian household debt at record levels.

by Dr. Housing Bubble

Global housing collapse coming — Dr. Housing Bubble

Never in the history of our modern economic system have we had coordinated housing bubbles rage across the world like some sort of financial plague.  The proliferation of boiler plate media and the ubiquitous spreading of banking debt made the real estate religion spread quicker than any time in the past.  The way real estate was being played up in the media was like some sort of spiritual revival.  I remember a colleague showing me a clip of a real estate seminar in California at the peak of the bubble where people looked as if they were in some sort of glorified peyote induced trance.  At the core of any mania is human psychology and herd behavior.  People never want to believe that their special niche market is not in some sort of bubble.  On January 15 we discussed theCanadian housing bubble and many people fell off their rockers as if this was some sort of spectacular revelation.  Reading through the comments on the Canadian bubble post is very reminiscent of 2007 in California where the “not in my back yard” arguments dominated the discussion.  The nature of this housing bubble is global and the collapse of markets across the globe will have wide ranging impacts that are yet to be felt.

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When the global housing bubbles collapse like a row of dominoes – Canadian housing bubble at apex. Real estate markets from Australia, UK, Italy, and Ireland now into correction phases.

Steve Keen agrees.

The good news for the US is that housing bubble already popped. The bad news is that is still further to go in the correction, and a global contraction due to a worsening financial crisis could stifle the recovery, especially with the austerity talk that is coming out of Washington and being echoed in state capitols.