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Milton

Global House Prices

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*Against long run average of price to rents ratio.

IN CROWDED Hong Kong, property is so expensive that even the estate agents are squeezed for space. The number of licensed agents reached 31,306 at the end of last year, an increase of 40% since March 2009. The qualifying exam is so popular that fees are going up. Golden Hill Properties in Wanchai makes do with a storefront but no store. Its agents perch on stools outside, reading from computer screens encased behind glass and typing on keyboards unlocked from a drawer.

But whatever those 31,000 agents say, Hong Kong homes are not a good deal, according to our latest global house-price index (see chart). In theory, the price of a home should reflect the value of the services it provides. People who choose to rent their homes buy those services on a monthly basis. Home prices should therefore reflect the rents that tenants pay. Our index calculates the ratio of prices to rents in 20 economies. In Hong Kong, that ratio is now almost 54% above its long-run average—and it is still rising.

People in Hong Kong often blame buyers from mainland China for pushing up prices. Ironically, mainlanders often blame buyers from Hong Kong for their own property frenzy. At a recent conference at Tsinghua University in Beijing, students complained that their parents had scrimped and saved to send them to university in the city, but now upon graduation they could barely afford to live there.

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Prices in China are not that high relative to rents: our index suggests that homes are overvalued by less than 13%. But this is based on the government's 70-cities index, which showed prices rising by only 6.4% in the year to December. That figure seemed implausibly low to many of China's stretched homebuyers, and the Chinese government appears to share their scepticism. Last month it said it would stop publishing the national figures, releasing only the local results instead. These show plenty of variation between cities: prices rose by 6.8% in Beijing in January, for instance, but by 1.5% in Shanghai.

Hong Kong's price rises are the steepest in our index but it is not the most overvalued housing market. That honour remains with Australia, which is overvalued by about 56%. In third place is France, where the ratio of prices to rents is about 48% above average. That may be one reason why over 40% of residents choose to rent. Tenants are well protected under French law from capricious landlords. Owners, on the other hand, must contend with volatile prices, partly because housing supply is so unresponsive to demand. A 10% increase in prices prompts only a 3.6% increase in supply, according to the OECD, compared with a 20% increase in America.

20110205_WOP571_290.jpgExplore and compare global housing data with our interactive house-price tool In Australia the market is at least inching closer to fair value. Home prices in Australia's eight state capitals rose by only 1.2% in the year to January, according to the RP Data-Rismark index. Compared with the month before, prices fell by 1.6%. (The index shows the latest quarterly data.)

Indeed, only in Hong Kong, Singapore and Switzerland is the property market more overvalued than it was before the global economic downturn began in the third quarter of 2007. In every other market the ratio of prices to rents has fallen over that period. In America, prices may have overshot a little. Using the Case-Shiller index of prices, the market looks undervalued by almost 8%.

In both Japan and Germany the housing market is drifting even further below fair value: homes were already cheap and are growing cheaper. In Germany the ratio of prices to rents has tended to fall since the early 1980s, a trend interrupted, and then briefly, only by unification.

In Japan owning has been getting cheaper relative to renting since 1990, when the country's infamous property bubble burst with devastating effect. The market is now undervalued by more than a third, our index suggests. Even estate agents seem to be losing heart. According to the Real Estate Transaction Improvement Organisation, their numbers have fallen for the past four fiscal years.

http://www.economist.com/node/18285595

Edited by Dan1

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Matt Cooper wrote:

Australian housing is vastly, dramatically overpriced, by all reasonable measures. Unchecked commodification of shelter for the population has been caused by misguided governments failing to regulate the housing market while encouraging the use of tax loopholes like negative gearing and permitting over-leveraged speculators to bid up asset values so the govt can benefit from huge intakes of land tax, rates and stamp duty. The recent analysis by The Economist is right on the money, and you can see from the chart gallery below (including two charts from The Economist house price web tool) just how overvalued Australian housing really is.....

Australian Housing Bubble Charts

12 months ago there was complete denial that real estate was in trouble, but now the realization is beginning to dawn on many that something terribly serious is about to occur in Australia. The spruikers maintain faith in a soft landing, but they're straight out of luck this time. The bigger the boom, the bigger the bust, and the property boom that began in Australia in the nineties evolved into the greatest real estate bubble known to mankind. The bust that's coming will be a doozy. As 2011 unfolds the spruikers will come to understand that real estate in Australia is dead for generations. For anyone who's interested in reading some excellent blogs about the Australian property bubble I highly recommend the blogs hosted on the Australian Property Forum.....

Australian Property Bubble Blogs

During the next two years we can expect to see vacancy rates and inventory levels surge to unprecedented levels as house prices collapse by up to 40 or 50% in most parts of Australia. This might sound extreme, over the top. But how over the top were the 200% to 300% rises in house prices we saw over the past decades. A 50% fall is nothing in the scheme of things, it just brings prices back to a fair level. House prices always revert to the mean and Australia is no different. All the nonsense dreamed up by spruikers about shortages and population growth, it's all just hot air, designed to breath more life into the bubble. A vain attempt to blow new life into a dying bubble justifying more unsustainable price increases to already exorbitant asset prices. But the air has run out. Consumers are tapped out. There is no more money left. The bubble is dead. Long live the new new paradigm, where an average family can finally afford a decent home in Australia. It's been a long time coming, but soon it will be time for the bears to party. Bring it on!

Australia:

RealHousePricesAndFundamentals.png

United Kingdom:

prices1.png

Got to be over 50% falls from peak in Oz and the UK.

Edited by Dan1

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Guest The Relaxation Suite

I absolutely agree that Aus and UK need 50% falls. I also think that it will never happen. - at least not in one go. They will slowly let the air out of them over 10 years, etc., Japan style. The world is all about ideas, and the leaders of the world only have one idea to copy at the moment - that of Japan. Talking of Japan - looks like it's time to buy a house there at 35% under-valued!

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I absolutely agree that Aus and UK need 50% falls. I also think that it will never happen. - at least not in one go. They will slowly let the air out of them over 10 years, etc., Japan style. The world is all about ideas, and the leaders of the world only have one idea to copy at the moment - that of Japan. Talking of Japan - looks like it's time to buy a house there at 35% under-valued!

Well, if that does happen, it would mean I would have been priced out for over 20 years, because of fraud and theft.

Even the politicians agree that's what it was.

Fraud and theft.

We know there are options. The politicians could help FTB's.

So if some of the millions of us who are priced out, suddenly snap, and start burning down their house's, and attacking them in the streets, lets hope they don't hold a grudge.

I am simply not working my **** off for another ten years for nothing. No capital. To pay tens upon tens of thousands more in rent, for someone else's mortgage and retirement. Ive already spent over ten years doing that.

It would send me round the bend.

Its THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT THEFT

Edited by Dan1

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I absolutely agree that Aus and UK need 50% falls. I also think that it will never happen. - at least not in one go.

Of course it won't, they'll have a bust and their interest rates will go to zero, like ours. A decade after that the same will happen in brazil.

Afford-ability can be addressed by nominal price falls or a permanent decline in interest rates.

Place your bets.

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Guest The Relaxation Suite

Well, if that does happen, it would mean I would have been priced out for over 20 years, because of fraud and theft.

Even the politicians agree that's what it was.

Fraud and theft.

We know there are options. The politicians could help FTB's.

So if some of the millions of us who are priced out, suddenly snap, and start burning down their house's, and attacking them in the streets, lets hope they don't hold a grudge.

I am simply not working my **** off for another ten years for nothing. No capital. To pay tens upon tens of thousands more in rent, for someone else's mortgage and retirement.

It would send me round the bend.

I sympathise, also being someone who has been priced out (several years now), but you will feel better if you move on from the "rage phase" which I did some time ago. Look at it like this, accumulation of capital is not the main purpose of this life, but a bonus along the way. Take the opportunity to watch how other non-materialistic cultures do things and what they value. Do not let "them" turn you into an enraged person obsessed with housing ladders. Save your money, be patient, shun materialism. One day you will be richer and houses will be cheaper, and you will own a house. So will I. But will one be happy even then?

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Guest The Relaxation Suite

Of course it won't, they'll have a bust and their interest rates will go to zero, like ours. A decade after that the same will happen in brazil.

Afford-ability can be addressed by nominal price falls or a permanent decline in interest rates.

Place your bets.

We've seen from the imminent IR rises by ECB and then concomitantly the BOE that ZIRP has a limited lifespan, at least at absolute rock bottom. Also, Aus rates are traditionally a little higher and they've only just started putting them up to fight quite tangible inflation in Australia. So I am not sure long-term ZIRP is heading to Australia. The increase in rates here has slowed HPI and even reduced it a little. But not much - a warning for Britain - don't expect wonders when BOE puts up rates 0.25% and Merv climbs into his escape pod and blasts off to the Caribbean for his early retirement.

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We've seen from the imminent IR rises by ECB and then concomitantly the BOE that ZIRP has a limited lifespan, at least at absolute rock bottom.

Sorry, but there is no evidence, as you imply, of the limited lifespan of zirp, once reached. Apart from japan that is.

Prior to 2008 the only economy to have reached zirp was japan, and they are still there.

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We've seen from the imminent IR rises by ECB and then concomitantly the BOE that ZIRP has a limited lifespan, at least at absolute rock bottom. Also, Aus rates are traditionally a little higher and they've only just started putting them up to fight quite tangible inflation in Australia. So I am not sure long-term ZIRP is heading to Australia. The increase in rates here has slowed HPI and even reduced it a little. But not much - a warning for Britain - don't expect wonders when BOE puts up rates 0.25% and Merv climbs into his escape pod and blasts off to the Caribbean for his early retirement.

IRGraph.jpg

historicalrates2.gif

You are just a few years behind in time and porobably have to wait for China to blow up as the UK blew up with the US

but you are on a near as dammit identical trend towards zirp

how long zirp lasts for is another matter

Edited by Tamara De Lempicka

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Yeah I suppose. Already got a Nikkei tracker. It is up 10% this year. Any other ideas?

Adjust exposure upwards?

Setup a business that exports goods that ancient japs spending their retirement stashes would buy?

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relative to what?

*Against long run average of price to rents ratio. Although the general consensus is that UK rents are over priced. Plus when UK House Prices Bottom out they will overshoot. Plus the median average income charts the Economist have on their 'machine' in that link seem optimistic to me, compared to the one I posted which is average earnings data from the ONS.

Edited by Dan1

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Guest The Relaxation Suite

Yeah I suppose. Already got a Nikkei tracker. It is up 10% this year. Any other ideas?

So people think money is going to pour into Japan now?

As for Aus ZIRP no I do not think it will happen, at least not as long and low as the UK/US model. ECB will raise rates soon, and BOE will follow suit in time. A concomitant decrease in Aus rates will affect the exchange rate positively for anyone holding sterling.

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I sympathise, also being someone who has been priced out (several years now), but you will feel better if you move on from the "rage phase" which I did some time ago. Look at it like this, accumulation of capital is not the main purpose of this life, but a bonus along the way. Take the opportunity to watch how other non-materialistic cultures do things and what they value. Do not let "them" turn you into an enraged person obsessed with housing ladders. Save your money, be patient, shun materialism. One day you will be richer and houses will be cheaper, and you will own a house. So will I. But will one be happy even then?

Aye, donna how good we've got it really do we?

Edited by Dan1

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Guest The Relaxation Suite

Aye, donna how good we've got it really do we?

Excellent. Humour is the best defence against the things you point out above.

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30% fall = 2% nominal fall and 4% inflation for each of the next 5 years. Job done and then some. World, and indeed the UK, carries on turning.

Agreed

This is already happening. A compromise where some win, some lose but the majority are unaffected. The good news for those who want to enter the housing market is that there is no need to rush. Nominal prices are going nowhere fast so we can take our time.

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A vain attempt to blow new life into a dying bubble justifying more unsustainable price increases to already exorbitant asset prices. But the air has run out. Consumers are tapped out. There is no more money left. The bubble is dead.

Perfect. This is the truth, not the 'sentiment' guff spouted by EA's and the like, which people still waffle on about. A market is bid, offer. End of. When the money is gone, it's gone.

Reality beckons.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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