Like others in this thread I'm not an expert, but it seems to me that the thing every cyclical housing market has in common is a heavily subsidized/credited/backed mortgage market. I think the counterexample is Germany? They build a good amount of housing every year, they watch housing prices very carefully and pull some levers if they tick up or turn down, and they don't store a huge amount of their population's wealth in their homes.
Anything else wildly perverts monetary policies. The mortgage market is suddenly the real bond market, there's extreme moral hazard, there are either explicit mortgage market safety nets or quasi-nationalized mortgage providers, etc. It becomes a weird monetary policy slush fund that is incidentally also where people live.
Germany also has a much more decentralized economy and more spread out population compared to other European countries. There is no city equivalent to London, Paris or Dublin.
For example Berlin's population only started growing in the 2010's (it's was stable or declining since the 1990's) and prices have been growing quite rapidly lately so arguably it just a few years (or decades) behind other major European cities. Munich on the other hand is almost as expensive as Paris.
I think the biggest difference between Germany and Anglo-Saxon markets is that houses here aren't a commodity. People rarely move out of and sell houses. Most owners buy once in their lifetime. Consequently, houses sold are quite old on average and often not worth much.
Germans rent a lot. They have the highest rate of rentals in the EU, I'm not sure how this compares to the US. I'd guess Germans rent more than Americans.
It's like this guy has never heard of a speculative bubble, and sets up a series of straw men to nock down instead. Even though "bubble" is in the title.
Edit: oh I get it, his point is that yes there was a bubble, and that's why prices went up. Without extra supply it would have been worse. I think that's putting the horse before the cart, because without the bubble the extra supply wouldn't have been built.
Very curious to see what happens with the US housing / real estate market. I think stocks / equities are going to see a severe down turn this year and a good deal of money is going to leave the market. At the same time inflation is very high so sitting in cash is a loser as well albeit not as bad as riding the markets down. Will that money from the stock market go into real estate or will real estate crash too as the fed raises rates? Will remote work continue and in doing so will it reduce pricing on commercial business offices? Will business offices convert to condos? I have no idea but interested to hear any theories.
Depends on how much the real estate market is being fueled by the Stock Market. We've seen a bull market now for the last, what, 13 years? Is this continual wealth driving all the other prices upward?
As we saw in 2008/2009, financial markets are linked more so than they tell you. Diversifying your portfolio is a good idea, but having both real estate and stock investments is probably not in fact diversifying.
Include labor and leverage in your thinking on diversification as orthogonal dimensions to asset class. Even rich people can bring their own labor out of reserve when there assets are losing value. When assets appreciate, they can rebalance towards leisure.
The fun bit is that everything is 'overvalued' now - stock market, real estate, even crazy things (many parts of crypto such as NFTs, but also Pokemon cards and other collectables) are through the roof, where will all this money go? money out of a bubble has to go somewhere...
How far are we from the boomer generation leaving the market (one way or another)? This will create a lot of oversupply and negative pressure on prices I would assume - who will buy all their houses in the country, their share in the stock market? The answer to that is that we've been doing that already in the past decade with all the money printing / inflation / devaluation of wealth... not sure where the train stops and who will be left holding the bags.
Anyone buying in between now and the future is holding the bag as value terminally declines. These are structural demographic issues combined with technology deflationary pressures, leading to heat death of asset baskets supported by declining productivity of aging populations. See Japan for a preview.
The juice was squeezed over the last 40-50 years, and those times aren’t happening again [1].
You are describing hyperinflation. Everything is up, except for salaries. There are two options:
A) accept the prices as real, embrace the inflation, and raise salaries
B) crash the markets and real estate, kill all the crypto-scam economy, keep jobs running with government money
Some kind of mix of both will happen. I doubt that salaries can continue this low when basic needs cannot be covered. And I doubt that it's possible to just rub off so much inflation, some things need to go down. So, we can meet in the middle.
> How far are we from the boomer generation leaving the market (one way or another)?
20-30 years, during which time the younger generations will be entering. They are smaller slightly but most countries have immigration which keeps them fairly neutral.
> The answer to that is that we've been doing that already in the past decade with all the money printing / inflation / devaluation of wealth
This is not quite correct. Printing money does create inflation. Cross sector inflation does lead to devaluation of liquidity, but wealth includes more than cash on hand.
That's driven by the farmland bubble. Southern Ontario farmland prices are up 700% since the mid-2000s, which has priced urban sprawl out of the market. With Toronto (i.e. the cities around the City of Toronto) unable to expand like they once were able able to, that has increased buying pressure on the land that is already within the city limits, thereby also driving up the cost of housing in those cities.
While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases. The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
>The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
Why is farmland in those areas so sought after? Were canadian farmland historically underpriced? Is the land just really good farmland? Are speculators buying it because of global warming?
This isn't true. Costs of housing have spiralled out of control outside of Toronto and Vancouver -- here on Vancouver Island in Nanaimo the house I built in 2018 for $950k is now worth near $1.5M. Up 20% in the past year. It's nuts.
>While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases
Kelowna? Calgary? Halifax? Are those places being driven up by farmland demand?
I've been looking to buy in the Toronto are. Prices are up 15% since November. Houses that had comparable sales of $850k in November are now going at around the $1M mark. I don't know how that rise is sustainable.
Lol exactly. I don’t wanna tout who has the most expensive houses but Prague and Brno win with the average wage / price ratio. I’m already remote for US company and still cannot a flat here due to abysmal central bank rules.
Though bubbles are a bad analogy: actual bubbles burst, economic bubbles deflate - not because of a puncture, but because they were continuously filled with air from a source that at some point can't provide it anymore.
While true, this misses the point of the article. What was the source of the air? The author claims cheap homebuyer credit and laxer lending requirements explains 90+% of the run up. They also claim this is non-obvious.
They do claim it, but how is "cheap homebuyer credit" and "laxer lending requirements" non obvious? I call BS - especially since there have been warning spelling those exact issues out time and again...
> actual bubbles burst [...] not because of a puncture, but because they were continuously filled with air from a source that at some point can't provide it anymore.
Don't they burst because the source doesn't stop before the bubble gets larger than what it can be? The source stopping would just lead to a deflation where it slowly gets smaller if the air hole is still open, or remain the same size until tiny leaks make it not be the same size anymore.
>*Don't they burst because the source doesn't stop before the bubble gets larger than what it can be? (...) The source stopping would just lead to a deflation where it slowly gets smaller if the air hole is still open
To continue my analogy, I prefer to visualize them as flying uncontrollably while shrinking very quickly (but not immediately as a puncture would), propelled by their own deflation discharges...
The main question is, what would be the source of the bubble?
Is it cheap capital? Fraudulent bank practices? Or is it because people wanted more space during lockdowns while having the sense of financial stability?
If the demand increased while supply stayed constant, the price increase is not a bubble. I waited for "the bubble to burst" for years before realizing there likely is no bubble where I am from. Housing's just expensive.
My tip is "distrust against the future value of the currency". Bricks do depreciate as well, but not massively.
The bond buying programs of the ECB are pretty expensive already, and the Green New Deal will be mostly implemented on credit. And Europe is already quite deep in debt. So is the USA, but the USA can at least derive some strength from the dollar being the world reserve currency, with no clear challenger in view.
Because tons of professions, small business, workers laid off, etc suffered from the lockdowns, so there was not exactly clear that "people had more money to spend".
I've noticed that the covid crisis has resulted in steady or even growing home purchases, many of them as second homes. In the US there was a lot of talk in 2021 of those who had not lost their jobs sitting on more liquidity than ever before, so I'd assume it's many of these people who jumping into the housing market.
Interest rates fell dramatically, government stimulus/cash transfers were far in excess of any lost wages, fewer people wanted to list houses and do showings due to covid.
> Ireland had arguably the world’s largest housing bubble and crash in the 2000s, with prices quadrupling in the decade to 2007, even while supply soared, before crashing by more than half between 2007 and 2012.
So, prices doubled in the years from 2000 to 2012 - a little under 5% yearly growth. Is that really a crash? Or am I misunderstanding "quadrupled then halved"?
Interestingly Leitrim and other counties in the north west he mentions have been high on the list of places people have escaped to from Dublin during the pandemic. Many people are now living there and working remotely for Dublin companies, and there are far too _few_ houses there now, and house prices have skyrocketed
Readit News
Anything else wildly perverts monetary policies. The mortgage market is suddenly the real bond market, there's extreme moral hazard, there are either explicit mortgage market safety nets or quasi-nationalized mortgage providers, etc. It becomes a weird monetary policy slush fund that is incidentally also where people live.
For example Berlin's population only started growing in the 2010's (it's was stable or declining since the 1990's) and prices have been growing quite rapidly lately so arguably it just a few years (or decades) behind other major European cities. Munich on the other hand is almost as expensive as Paris.
Edit: oh I get it, his point is that yes there was a bubble, and that's why prices went up. Without extra supply it would have been worse. I think that's putting the horse before the cart, because without the bubble the extra supply wouldn't have been built.
This post is all over the place.
In fact - places like Ireland are shockingly rare exceptions where supply actually went up with demand.
That's why this article is interesting.
The topic is apparently his phd thesis.
As we saw in 2008/2009, financial markets are linked more so than they tell you. Diversifying your portfolio is a good idea, but having both real estate and stock investments is probably not in fact diversifying.
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How far are we from the boomer generation leaving the market (one way or another)? This will create a lot of oversupply and negative pressure on prices I would assume - who will buy all their houses in the country, their share in the stock market? The answer to that is that we've been doing that already in the past decade with all the money printing / inflation / devaluation of wealth... not sure where the train stops and who will be left holding the bags.
The juice was squeezed over the last 40-50 years, and those times aren’t happening again [1].
[1] https://ourworldindata.org/uploads/2013/05/Updated-World-Pop...
You are describing hyperinflation. Everything is up, except for salaries. There are two options:
A) accept the prices as real, embrace the inflation, and raise salaries
B) crash the markets and real estate, kill all the crypto-scam economy, keep jobs running with government money
Some kind of mix of both will happen. I doubt that salaries can continue this low when basic needs cannot be covered. And I doubt that it's possible to just rub off so much inflation, some things need to go down. So, we can meet in the middle.
Inflation. Food, bills, gas, etc.
> How far are we from the boomer generation leaving the market (one way or another)?
20-30 years, during which time the younger generations will be entering. They are smaller slightly but most countries have immigration which keeps them fairly neutral.
> The answer to that is that we've been doing that already in the past decade with all the money printing / inflation / devaluation of wealth
This is not quite correct. Printing money does create inflation. Cross sector inflation does lead to devaluation of liquidity, but wealth includes more than cash on hand.
While Canada as a whole has recently seen some small increases to the cost of housing on the back of increasing lumber and labour costs, the country has a whole has remained largely stagnant, even falling in some cases. The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
>The gigantic gains seen, which bring up the country average, are limited to the prime agricultural areas, namely Toronto and Vancouver, where farmers are now willing to pay more than developers for undeveloped land. Something that is historically unusual.
Why is farmland in those areas so sought after? Were canadian farmland historically underpriced? Is the land just really good farmland? Are speculators buying it because of global warming?
Kelowna? Calgary? Halifax? Are those places being driven up by farmland demand?
If not, the injury is self inflicted.
Welcome to Europe :)
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Though bubbles are a bad analogy: actual bubbles burst, economic bubbles deflate - not because of a puncture, but because they were continuously filled with air from a source that at some point can't provide it anymore.
Don't they burst because the source doesn't stop before the bubble gets larger than what it can be? The source stopping would just lead to a deflation where it slowly gets smaller if the air hole is still open, or remain the same size until tiny leaks make it not be the same size anymore.
To continue my analogy, I prefer to visualize them as flying uncontrollably while shrinking very quickly (but not immediately as a puncture would), propelled by their own deflation discharges...
So, this kind of thing: https://www.youtube.com/watch?v=6CTnTi1Lq60
Is it cheap capital? Fraudulent bank practices? Or is it because people wanted more space during lockdowns while having the sense of financial stability?
If the demand increased while supply stayed constant, the price increase is not a bubble. I waited for "the bubble to burst" for years before realizing there likely is no bubble where I am from. Housing's just expensive.
The bond buying programs of the ECB are pretty expensive already, and the Green New Deal will be mostly implemented on credit. And Europe is already quite deep in debt. So is the USA, but the USA can at least derive some strength from the dollar being the world reserve currency, with no clear challenger in view.
Well yeah people wanted more space and had more money to spend - of course prices went up. Not sure why you've said 'even'?
Interest rates fell dramatically, government stimulus/cash transfers were far in excess of any lost wages, fewer people wanted to list houses and do showings due to covid.
Certainly a perfect storm.
You just described every bubble. The whole point of bubbles is that you can't predict when they'll pop.
Rental houses are an asset class now, and that’s unlikely to change while the rich can get richer renting to people who can’t afford to buy.
So, prices doubled in the years from 2000 to 2012 - a little under 5% yearly growth. Is that really a crash? Or am I misunderstanding "quadrupled then halved"?
Has price index since 2005, but not before.
For all residential properties it was
2005-01: 125
2007-07: 163 (peak)
2013-03: 73 (trough)
2021-11: 155 (latest)
Even just looking at Dublin houses (where people want to live due to centralisation of economic activity), it follows the same pattern
2005-01: 112
2007-04: 155 (peak)
2012-04: 65 (trough)
2021-11: 141 (latest)
> So, prices doubled in the years from 2000 to 2012 - a little under 5% yearly growth. Is that really a crash?
2008 was still a stock market crash, even if the average growth from 2000 to today is very good
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