Wednesday, August 3, 2011

The Global Housing Boom: It came in waves

Our friends over at Vancouver Condo Info have come out with an excellent link worth checking out.

Since 2005, this article at the Economist have been available for subscribers only.  Now it is online for the public.  It is a landmark article about the worldwide housing boom from June 2005 and is a must read!

So many Vancouverites (and Canadians) have viewed our housing bubble as separate and 'different'.

It isn't.
  • "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?... The global boom in house prices has been driven by two common factors: historically low interest rates have encouraged home buyers to borrow more money; and households have lost faith in equities after stockmarkets plunged, making property look attractive. Will prices now fall, or simply flatten off? And in either case, what will be the consequences for economies around the globe? The likely answers to all these questions are not comforting."
Remember - this article is written in 2005. The Canadian bubble was blown into even more gigantic proportions by even lower interest rates when the financial crisis hit in 2008.
  • "The most compelling evidence that home prices are over-valued in many countries is the diverging relationship between house prices and rents. The ratio of prices to rents is a sort of price/earnings ratio for the housing market. Just as the price of a share should equal the discounted present value of future dividends, so the price of a house should reflect the future benefits of ownership, either as rental income for an investor or the rent saved by an owner-occupier."
All these other jurisdictions were convinced these fundamentals did not apply to them.

They were wrong.

Reading the article today and substituting 'Canada' for many of the other countries examined in the article can only leave you with a sickening feeling for what lies ahead for our real estate market.

As we have said before, we have not escaped the fate of the housing market around the world.  Our destiny has only been delayed.
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1 comment:

  1. your going to make a killing!!!

    currency war is now in play...!!!!!
    r/e is now toast!!