The title of this article is a bold statement…world housing bubble.
The near-failure of the U.S. economy in 2007 brought with it the ultimate Keynesian response: extremely low interest rates, all across the globe. Shockingly, although countries lowered their rates in response to a real estate collapse in America, the result has been bubble-like housing growth all over the world.
Consider this selection of recent articles…
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CHINA
Overseas realty proves safer bet
“More wealthy Chinese are buying overseas properties for better investment returns as skyrocketing property prices in the country makes domestic home purchases more risky.”
www.cs.com.cn/english/ei/201003/t20100322_2373066.htm
AUSTRALIA
House surge leads to mortgage stress
“VICTORIA'S resurgent housing market is putting borrowers under severe financial strain, even if they are employed or earn more than $80,000 a year.”
www.news.com.au/money/property/house-surge-leads-to-mortgage-stress/story-e6frfmd0-1225843130252
CANADA
House prices to hit record: Scotiabank
"Canada's housing boom will continue this spring as exceptionally low mortgage rates and the expectation that borrowing costs will soon be headed higher – add a sense of urgency to consumer buying."
www.theglobeandmail.com/report-on-business/economy/house-prices-to-hit-record-scotiabank/article1509303/
ISRAEL
This bubble won’t bust, if we build over the Green Line
"The great crisis in the financial market drove people out of financial assets while historical low interest rates made mortgages much cheaper. The feeling that the only safe assets are the old-fashioned ones, first and foremost solid buildings, combined with a wave of foreign Jewish investors rushing to buy homes in the land of the Jews as a kind of an insurance policy drove the prices of homes in Israel to the top."
www.jpost.com/Business/BusinessFeatures/Article.aspx?id=171505
SOUTH KOREA
Housing Market Bubble possibility not high nationwide
"A KCCI representative commented that 'although there are many ongoing debates about the possibility of housing bubble...the possibility of house bubbling is quite low,' and further added that 'we must rather focus and prepare ourselves for the possibility of sudden drops in house prices due to unstable economic situations.'"
english.korcham.net/bbs/viewnotice.asp?code=reports&page=1&id=460&number=460
U.K.
Fears grow that new mortgage drought could hit house prices
"House prices fell 1.5 per cent in February after seven months of uninterrupted growth, according to the Halifax, the UK’s biggest mortgage lender. It says that buyers were deterred from visiting estate agents by the severe cold weather and changes to stamp duty."
www.timesonline.co.uk/tol/money/property_and_mortgages/article7060101.ece
LEBANON
Salameh rules out any real estate bubble
"Central bank Governor Riad Salameh said on Thursday that he does not expect a real-estate bubble to take place in Lebanon, and that the surge in property prices in the country is due to a real increase in demand."
www.beirut-online.net/portal/article.php?id=6669
SWEDEN
Economists reject 'housing bubble' report
"Economists from state-owned mortgage lender SBAB have rejected as unfounded warnings from the National Housing Credit Guarantee Board (BKN) that Sweden stands on the precipice of a house price crash."
www.thelocal.se/25236/20100226/
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The worldwide economic recovery, which is only now taking shape, is threatened by the very thing that started the crisis in the first place: real estate. Only this time it doesn’t just involve a single country.
The world's economies are in a dangerous position. On one hand, increasing rates could slow down or even derail the recovery. On the other hand, the longer interest rates stay low, the more unsustainable long-term real estate prices will become.
Somewhat perversely, the U.S. economy seems to be the real winner here. After two years of suffering, U.S. banks have recapitalized and are sitting on cash; home prices are affordable; consumers have been paying down debt. Although the U.S. economy looks ragged at the moment, it is in the best position to move forward.
One can only hope that the world real estate reversal will be more anticipated, more orderly and more methodical than the earlier U.S. meltdown: yet somehow, I doubt it.
Investors can do some simple things to prepare for the inevitable. First, take some profits and build cash. That does not mean selling all your stocks, for heated markets can rise for much longer than you may think. It does, however, mean selling parts of your portfolio related to housing and construction. It also means making sure that if you have a margin trading account, you are using margin sparingly, if at all.
Most importantly, be vigilant -- which includes checking this website from time to time. When the “things have slowed down but are still fine” headlines start making regular appearances on the news, it’s time to start considering making money on the downside.
As manias subside, the result is never pretty.
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"When money is free [interest rates are lower than inflation], the rational lender will keep on lending until there is no one else to lend to." George Soros
