This is often treated as a “how long is a piece of string?” question, but The Economist has performed a great public service by allowing an easy comparison of the length of this piece of string across many countries and over time.
Check it out yourself. For Australian readers, house prices today are almost 2.5 times what they were in real terms in 1986; and our price bubble (in CPI-deflated terms) turns out to be smaller than some countries (notably Belgium’s) but larger than the USA’s and UK’s.
Like all such exercises, it is limited by the time series from which the data is taken: the earliest data shown here is for 1975, which is after the second major financial crisis of the post-WWII era (the first was in 1966) but at the end of what was, for its time, a very large property bubble. So the reference point of 1975 could itself represent a “highish” point for house prices, rather than “fair value”.
The data is also short for some countries, and with a difference reference date (say 1987 rather than 1976) the relative ranking of countries changes substantially. A quick look at the Herengracht Index–which shows the CPI-deflated value of housing along a wealthy canal in Amsterdam between 1628 and 1972–shows how important the starting date can be in working out whether housing is “expensive” or “cheap” at any point in time:
The important macroeconomic issue which this data alone doesn’t address is the level of debt that house price inflation has led to. It is probable that a higher real house price reflects a bigger ratio of mortgage and other private debt to GDP, but this isn’t necessarily the case. That ratio is the key indicator of whether a country is going to experience a debt-induced recession.
@pb 98.
Quite true. To be clear, I wasn’t saying that there hasn’t been a price drop in Belmont. Rather, that the Banks are more involved in propping up the less expensive markets.
Often, in the more expensive areas, people tend to buy with cash, or to put more skin in the game. In contrast, it’s those areas where the FHA loans were/are easily available that we see the problem loans, IMHO. Especially with zero down loans. The FHA limit on the super-jumbo conforming loans is about $720,000 now. I don’t believe you can do a zero down with that in Belmont!
Just heard online (from a London station) that the recession is all but over?
How much are 1 bedroom rents these days in Sydney? I’m moving and my new rent will be almost $800 (vs. the current 660). Square footage is going from roughly 650 to 750.
Just read the following article about UK inflation, the CPI has had the biggest monthly jump ever recorded of 2.9% up from the previous 1.9%. While the RPI has jumped the most in over 30yrs to 2.4% from the previous 0.3%, this jump is blamed on house prices……??
http://www.independent.co.uk/news/business/news/record-inflation-jump-puts-boe-under-pressure-to-increase-rates-1873111.html
I believe this will be temporary then deflation will take hold in the longer term.
soho44
you can find cost of 1bedroom rents in Sydney at a couple of sites, eg. domain.com.au
Housing Bubble Fears, And Prices, Soar In China
http://www.npr.org/templates/story/story.php?storyId=122990689
“Just over three years ago, songwriter Liu Shuqiu protested China’s high housing prices with a satirical song that urged “people who don’t want to be slaves to their mortgages” to rise up.
The song used the tune of the Internationale, the anthem of international socialism, and the lyrics exhorted:
We should fight for houses, shatter the developers to pieces. Don’t think we are obedient; the consequences will be serious if we get mad.
…the fate of a popular television soap opera, Dwelling Narrowness, which was pulled from the airwaves. The show charted two sisters’ struggles to buy an apartment, with one of them eventually becoming the mistress of a corrupt official.”
Listen to the story as is has remarkable similarities to Australia: government distortion of prices etc etc
Just noticed that the “6th Annual Demographia International Housing Affordability Survey” is out.
The report has a major focus on Australia.
See here http://www.demographia.com/dhi.pdf