Sunday, June 19, 2005

Biggest bubble in history? House price crash worldwide?

There was a 36% rise in real house prices in Japan in the seven years to 1991.

Since 1991, Japanese property prices have dropped for 13 consecutive years, by a total of 35 per cent.

Taking the average ratio of house prices to incomes in 1975-2000 as a baseline, American house prices are now overvalued by almost 30 per cent.


In the past three years, the total value of residential property in developed economies has increased by an estimated $ 20 trillion, to over $ 60 trillion.

The rise is double the $ 10 trillion by which global share values climbed in the three years to 1999.


"Not only do houses in many countries look more overvalued than at previous peaks, but with inflation so low, prices would have to stay flat for at least a decade to bring real prices back to long-run average values.

"Most important of all, in many countries this house-price boom has been driven far more by investors than in the past, and if prices start to dip, they are more likely to sell than owner-occupiers. In America this could mean the first fall in average house prices since the Great Depression."


House prices over the last 3 years:

South Africa up 95%

Australia up 56%

Britain up 50%

Thailand up 29%.

"To doubters — who are predicting prices will fall by 20% or more in many countries — it is the gigantic bubble that swallowed the world, bigger than the stock market boom of the 1990s and almost twice the size of the Wall Street bubble of the roaring 1920s."


"In the late 1980s the UK property market peaked and the following recession left 2m people trapped in homes with negative equity — some for more than a decade. Some 75,000 homes were repossessed in 1991 alone.

"A recent study by the Bank for International Settlements examined 16 house price booms in various countries since 1970, and found that only six had ended in sudden busts. All but one of those, however, led to a recession.

"In Britain the long-run ratio of average of house prices to average annual earnings is 3.8; but it currently stands at 5.5."


FRANCE :Average prices have risen 48% over the past three years, but rural houses in less fashionable regions can still be picked up for less than £50,000.


"House prices in Britain soared in the late 1980s, buoyed by low interest rates and tax cuts. When interest rates doubled in 18 months house prices crashed, dropping by 30%-40% in some areas.

"In the 1990s internet stocks boomed. But after peaking in spring 2000 they lost two-thirds of their value in three years."

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