The US housing crunch has gotten a lot of ink. But according to this report in the Economist, housing prices may be even more out of whack in other countries around the globe.
The S&P/Case-Shiller national index,
the best gauge of American house prices, peaked last year after rising
by 134% in the previous decade. France, Sweden and Denmark have all had
booms of similar size. In Britain, Australia, Spain and Ireland, the
ten-year increase in house prices has been even larger. If America is
staring at a nasty housing crash, what does this say about the fate of
frothy markets elsewhere?
September 19th, 2007 at 5:52 pm
Compare this to the Global Creativity Index in “Flight” where the top 10 are: Sweden, Japan, Finland, US, Switzerland, Denmark, Iceland, Netherlands, Norway, Germany. Is the creative class driving up prices? Probably, it seems to have in US cities. Does this mean a crash? Who knows, the Economist points out that these countries haven’t had the sub-prime phenomonen driving purchases. Also, many haven’t starved public housing like the US, so the pressure on the bottom end is lower.
September 21st, 2007 at 11:01 am
Certainly I think the rise of a “creative class” or the knowledge economy generally is playing a role in housing price increases. The knowledge economy is inherently an “urban” phenomenon driving more people toward cities.
But perhaps the biggest factor in looking at this housing price phenomenon globally is interest rates.
Interest rates have been generally low around the industrialized world — and this fact seems to be overlooked frequently by analysts in looking at prices. If you look at percentage of income required to support mortgage payments, in many cases the price rise is not nearly as dramatic as it first appears.
If I remember correctly, I recall reading that in Canada, housing was actually more affordable in this upswing until about 2006 than it was in most earlier eras. This was because you could get a mortgage at less than 5%!
So, whether prices will fall dramatically in countries other than the US (ie without some structural problem like the sub-prime mortgage lending) will likely depend upon interest rate trends.
At the end of the day, when individuals and couples decide to buy a home, they tend to look at their monthly payments in determining affordability — as does the bank loaning the money — not really at the sticker price.