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Mar 29th 2012, 14:10 by The Economist online
Our interactive overview of global house prices and rents
FROM the late 1990s, home prices across the rich world boomed. The correction after the bubble has been much more dramatic in America than Europe. Roles may be reversing. Irish and Spanish home prices continue to drop. From the third quarter of 2011 to the fourth, appreciation slowed in Germany and markedly so in France. In America, although prices continue to drop, better times are in sight. Buying a house looks like an increasingly good bet compared with renting, and rising rents are helping to cut into a backlog of unsold homes as investors buy homes. America may soon exit a long correction others have barely begun.
The Economist has been publishing data on global house prices since 2002. The interactive tool above enables you to compare nominal and real house prices across 20 markets over time (select 2011 Q4 for the most recent data). And to get a sense of whether buying a property is becoming more or less affordable, you can also look at the changing relationships between house prices and rents, and between house prices and incomes.
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China numbers
According to the chart, the % change from 2006 Q4 to 2011 Q4 was only about 5%. I know from following the development personally as well as from several people I know, who have actually bought homes in that period, that the increase was about 100% for new buildings. This seems to have happened in second-tier as well as first-tier cities. Anecdotal evidence may not be reliable, but how is such a huge deviation possible?
Prices against rents also supposedly remained stable in that period. I personally rented homes and offices during that period in the CBD of second-tier city, and rents have not moved up one bit while prices, as mentioned, doubled. Just last month I rented an office for which I calculated the market-price-to-rent-ratio to be a shocking 900!
Also, if there was hardly any change, how come the Chinese government is so concerned about increasing prices?
I want to suggest adding Norway to your survey. A tiny country, yes, but it has embarked on a route of its own, parting from Europe, Scandinavia and also other highly-developed natural ressources economies such as Canada and Australia.
An explosive mix should reward following Norway, with data readily available from SSB.no:
- Currency appreciation angst keeps interest rates artificially low (see e.g. your own Big Mac Index for current state of exchange rates).
- Influx of foreign workers and a strong economy push up rents and prices.
- Policywise, a junglish bureaucracy keeps building permits lower than "natural", especially considering strong urbanisation.
- A new finance rate of maximum 85% loan/price is intended to cool the market...
- ...and fueled a further rush of the "get in before it's too late"-kind. More and more people are financially excluded from owning houses.
- The tax system strongly favours house ownership. Renting is currently more expensive.
Indicators pull both ways then, but the word "bubble" is heard more and more.
The worlds biggest ever housing bubble was Ireland, where prices multiplied by 520% in only 10 years. It was the world's biggest bubble. See below for details...
IRELAND - Worlds biggest property bubble
On the other hand, there are dozens of countries around the world where property values have been rising steadily for decades without crashing. See below...
House price crash countries (USA, Ireland, Japan etc) are the exceptions to the rule
What does this mean? It means house price to rent ratios and house price to income ratios are not a good indicator of whether or not prices will crash. There are far too many other important factors at play in each country.
Often an important aspect of is overlooked: The supply.
I agree that cities like London and Paris have no more room for new constructions but the situation is completely different in emerging countries.
I live in Sao Paulo (Brazil) and I see everywhere the miracle of land multiplication being performed, 30+ floors are popping up everywhere.
In my opinion, even with a constant purchase power, prices will fall simply because supply is surging. Recent graphs show that the amount of new projects launched in 2010/2011 is far higher than 2008/2009 and all those constructions that started in 2008/09 are starting to be delivered now. Proof of this is that the volume of unities sold x the volume of unities launched is dropping drastically and the stock in the hand of constructors in rising fast. (SECOVI data)
In my opinion we are lucky that there is not (yet!) a credit bubble in Brazil but we certainly will face a supply overload in the next years.
Exactly what I am thinking. People say about China, "Prices are high, but there are so many people", forgetting that you can fit many, many people into a city if you build 30-50 floors high, as is currently standard in the better areas. In Europe, people often want to live in classic buildings with about 5 floors; in China, people want their apartments to be as high as possible. And they are mushrooming everywhere.
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As a young generation of Asian.i can't afford the soaring and high house price.In some coutry,house is related to census register,and the register determined most of your vital favourable circumstances,even determined the next generation.Big different chances betwwen different registation.Pity the generation who were born in the rural area while was deprived of the land rights when he/she come into the university.
That's how inflation and debt is called growth.
The information provided is of poor quality. Quite clearly in Italy there are dramatic regional differences in house prices. For instance, in Liguria the prices are rather high despite incomes on national average.
Expressed in terms of income, not only Spain, but also countries like Netherlands and Belgium seem inflated. Especially considering the low income growth compared of NL and BE to Spain in the last couple of years, there must be a huge bubble in the housing market. (OR a real increase in demand, but that seems hardly credible looking at population growth...)
Before, I thought only a few countries had huge real estate bubbles; besides America, I had in mind a few countries like Spain or Ireland, but from hear it seams the number was much larger.
India
In India , Housing is very reasonable. I think , there will be no bubble in coming centuries. There are few reasons. First of all, Indians build pucca houses with bricks, cement, steel and they are very solid and durable, Not like cardboard houses in other countries which cost pennies to buy the material .In India, Value of the house is set by geographical location of the house and construction costs remain same whether it is a rural , urban or a city. If other countries follow the same plan like India, I think there will be no bubble effect on the housing. Basically I am an economics illiterate, i dont know how far i am correct.
What is also important is that around 30% to 40% of the transaction value for the sale / purchase of a property is in accounted cash. Hence, with 40 % of own equity + 25 % margin, the buyer cannot afford to default on 35 % of the value.!
Best wishes
Kishore Nair from Mumbai
India
In India , Housing is very reasonable. I think , there will be no bubble in coming centuries. There are few reasons. First of all, Indians build pucca houses with bricks, cement, steel and they are very solid and durable, Not like cardboard houses in other countries which cost pennies to buy the material .In India, Value of the house is set by geographical location of the house and construction costs remain same whether it is a rural , urban or a city. If other countries follow the same plan like India, I think there will be no bubble effect on the housing. Basically I am an economics illiterate, i dont know how far i am correct.
India
In India , Housing is very reasonable. I think , there will be no bubble in coming centuries. There are few reasons. First of all, Indians build pucca houses with bricks, cement, steel and they are very solid and durable, Not like cardboard houses in other countries which cost pennies to buy the material .In India, Value of the house is set by geographical location of the house and construction costs remain same whether it is a rural , urban or a city. If other countries follow the same plan like India, I think there will be no bubble effect on the housing. Basically I am an economics illiterate, i dont know how far i am correct.
Ignoring for a minute how few Indians have an actual toilet and the size of India's slums, your comment is so factually incorrect and delusional to be laughable!
As are your comments. Never been to Asia probably, just here to slag off people. Long live the age of the keyboard warriors! India has a fast growing middle class and within the next 5 years alone it is expected to double. Also, the government is providing, slowly but still, decent housing to slum dwellers. It will take time, but then it could just follow the Chinese model and build hundreds of ghost cities just to show off and pretend how far advanced the country is.
His comment was rude but the argument of the OP are laughable. House properties are not mostly defined by materials price but mostly by location.
China has 657 cities(at least 20K population in a residential area by China's city definition),but how many ghost cities do you can find?
I just loath when I hear statements that refer to increasing house prices as a good thing. Why would anyone want house prices to rise? Who does it benefit? Does it benefit the home owner whom could then sell his house for more money and then live like a king while living on the streets? I do not yet own a home, because they are so expensive, and I wish the generation above me would stop bidding the price of houses up so high to the detriment of everyone (except the banks). Sure there is supply and demand, and only enough houses to go around, but when did the fight to win homes get so bad where whomever is willing to go furthest into debt wins the house? I'll tell you when. It was when banks realised if they gave people huge mortgages, home prices would rise forcing everybody else to take out loans too. Anyone who speaks of rising house prices as a good thing, is our enemy.
I haven't seen such an intelligent comment in my life :)
Here are four examples of what a potential home buyer could purchase for a million dollars in Vancouver:
http://viableopposition.blogspot.com/2012/03/what-million-dollars-will-b...
Weird to see that British property prices haven't come down despite the economic slump and the collapse of their banks. Why is that?
Low interest rates, and the fact unemployment is falling on the heads of those who aren't buying but renting. The rental market is skyhigh, the number of households is tending to increase as families split up.
So the reaction? Stay where you are, don't move, don't drop the price of your house if selling, keep to your job and pay down debt. The English are turning Japanese in that respect. If you are young, move in with ma and pa, or a friend, don't buy, rent. The buy to let market is still buoyant. I suspect that a lot of kids are being cramped into small houses.
Very tight supply constraints because of government planning regulation. It just wasn't possible for there to be subprime lending in the UK, since the government didn't authorise the construction of enough houses on previously unspoilt/ "greenbelt" land. There still isn't enough housing supply - chronically - so prices haven't fallen much even as credit markets have jammed up.
British banks were mostly damaged because they traded in US and Irish financial instruments, and took massive losses on their US investments.
The two exceptions are the worst:
- Northern Rock aggressively borrowed on money markets to lend mortgages (mostly solid, actually, with extremely low default rates). When the US securitized mortgage market collapsed in August 2007, there was contagion to the UK. Northern Rock was caught with money large market debts and (solid) securitized mortgages that it couldn't convince anyone to buy. Liquidity crisis resulted in an old fashioned bank run, soon to be followed by nationalisation.
- RBS went crazy. They had a very solid and profitable UK business and were highly capitalised. But immediately before the bust, they undertook a highly leveraged buy out of Dutch ABN-Amro. Unknown, ABN-Amro was a red hole - heavily loaded with US subprime debt. That wiped out RBS, and forced over 100 bn pound ($160 bn) government bailout to avoid collapse.
The UK does have very high levels of consumer debt - but the commercial debt interest is sufficiently high that no bank has had to declare significant losses on such lending.
Incidentally, this is terrible news for the UK. Even when the financial crisis has long washed, citizens are stuck with terrible planning institutions, housing shortages and extremely high costs.
The Canadian house price index has changed dramatically from say 12 months ago. At that point, the US figures were well above Canada when re-based to 1990 = 100. Now, when I return to this chart, Canada is well above the USA. So what gives? This is a change in data presentation that appears to indicate a over-valued Canadian housing market, but the real question is: which set of data was/is correct?
There's no doubt in any ones mind that housing prices in Australia are outrageously overpriced. One reason is because State Governments in Australia tax horrifically, every transaction involving a dwellling by way of stamp duties and other taxes. Local Councils and Utility suppliers in Australia take anything left over. The other reason is that Australians have a chronic ego. To "rent" in Australia is to place oneself in the "lower class". Australians will do anything to say they "own" their own home when it is actually a Bank that owns it, they just have the use of it while they pay off a 30 year mortgage and end up with a property worth far less than they paid for it, at current sales prices. Therefore, Australians will buy a house at any price just to say "they own their own home". This has led to the gross over-inflation of house prices in Australia. The bubble will burst there in 2010-13, Castles Of Sand, just as this article says. The smart people in Australia sold out in 2009 and are renting at a fraction of what they would pay in fees and charges related to home ownership, mortgage rates and the losses by way of depreciating house prices and the looming housing price crash in Australia.
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In order to assess whether there is a house price bubble I think it is helpful to look at the expected increase of house prices that is implicit in current rental yields. When I look at this for Australia I don't see much evidence of a bubble.
There is further explanation on my blog: http://wintonbates.blogspot.com/2011/12/is-there-house-price-bubble-in.html
This is an eternal question in Australia and almost impossible to answer for Australia as a whole.
Inner city Sydney will never go down, though may flatline for a while as economic activity stagnates (except of course at the very top end where prices need to come down) as there will never be enough new supply in those areas to meet increasing demand. Simply, there is a finite amount of houseing and that's it. But, if you buy far out (over 1hr from teh city) there is a lot of land and building going on and prices are overinflated.
Melbourne has an over supply and is having trouble too and there needs to be some serious corrections with inner city apartment over supply to get it working well.
Country Australia is a mixed bag. Holiday home areas are suffering a bit on the coast.
For example, take the area I live. I'm 10mins drive from the city and rental vacancy rates are sitting at under 1%. If you do a search on places for sale in my area there are only a handful and there are minimal new developments planned as there is no free land here and strict building regulations to stop multi-storey apartments. This is a prime location for investment property to meet the excessive demand for rental property, and there are only a few homes so the highest bidder gets them. In an area such as that, what would cause a sudden decrease in price?
As the old adage says - it's location, location, location.
Thank you for everyone proving me wrong.... and yet the bubble hasn't burst yet!
This is the fourth year in a row that I have heard the housing bubble would burst down under, so I guess everyone can just reset their predictions for 2012 and keep hoping.
Until it does... I'm afraid that no matter how wrong I am on here, I am still funnily enough right.
I take (partial) responsibility for it not bursting. I told K'Rudd advisors' to prevent house prices from falling if he wanted to avoid be another Whitlam (a victim of the 1975 property bubble) and I then noted the best way to do it was to suck in young people into the market (all very curious given I am a Georgist i.e. land value taxation and I've written a bit about the property market). So he (along with a few state governments) introduced the First Home Vendor's (Buyers) Boost. As the links I attach show, every time the economy goes down (house prices fell the sharpest in 2008 then ever before in Australian history) this Ponzi scheme is introduced to arrest the decline in housing.
I know prices in the last few months have fallen - I have again given them advice of opening up superannuation savings to keep the bubble going, more as a joke (I'm just testing James Buchanan's theory of adverse selection here!). I hope they are NOT insane enough to do so, but I feel bad now as I overlooked how short-term our pollies are. If they do, I suppose Cloud warrior will tell us in a few months time how the bubble has not burst and he'll have me to thank once again!
Only 2 countries without a bubble: Switzerland and Germany - funny how it works!
Not really, they remember the 1930's and where that led to!