Thread: Mike Shedlock: Pop Goes the Global Housing Bubble

Pop Goes the Global Housing Bubble

Mike Shedlock
Nov 27, 2011

The Economist is frequently a mixed bag. Here is an article on the global housing market that pretty much hits the right spot. Please consider House of horrors, part 2 http://www.economist.com/node/21540231

The bursting of the global housing bubble is only halfway through.

MANY of the world’s financial and economic woes since 2008 began with the bursting of the biggest bubble in history. Never before had house prices risen so fast, for so long, in so many countries. Yet the bust has been much less widespread than the boom. Home prices tumbled by 34% in America from 2006 to their low point earlier this year; in Ireland they plunged by an even more painful 45% from their peak in 2007; and prices have fallen by around 15% in Spain and Denmark. But in most other countries they have dipped by less than 10%, as in Britain and Italy. In some countries, such as Australia, Canada and Sweden, prices wobbled but then surged to new highs. As a result, many property markets are still looking uncomfortably overvalued.

The latest update of The Economist’s global house-price indicators shows that prices are now falling in eight of the 16 countries in the table, compared with five in late 2010.

Home Price Indicators



To assess the risks of a further slump, we track two measures of valuation. The first is the price-to-income ratio, a gauge of affordability. The second is the price-to-rent ratio, which is a bit like the price-to-earnings ratio used to value companies. Just as the value of a share should reflect future profits that a company is expected to earn, house prices should reflect the expected benefits from home ownership: namely the rents earned by property investors (or those saved by owner-occupiers). If both of these measures are well above their long-term average, which we have calculated since 1975 for most countries, this could signal that property is overvalued.

Based on the average of the two measures, home prices are overvalued by about 25% or more in Australia, Belgium, Canada, France, New Zealand, Britain, the Netherlands, Spain and Sweden (see table). Indeed, in the first four of those countries housing looks more overvalued than it was in America at the peak of its bubble. Despite their collapse, Irish home prices are still slightly above “fairâ€

Final Fannie Freddie Cost: $311 Billion and Rising

Mark Calabria
Nov 27, 2011

At the beginning of the month, the Federal Housing Finance Agency (FHFA) released its updated projections of the cost of rescuing Fannie Mae and Freddie Mac. http://www.fhfa.gov/webfiles/22737/GSEProjF.pdf These estimates update projections last made in October 2010. The big headline has so far read that costs have been revised lower. http://online.wsj.com/article/SB1000142 ... 22674.html But will that really be the case?

If one digs into the revised numbers, a few striking facts emerge. First, FHFA states losses since October 2010 have been lower than projected for a variety of reasons, including that “foreclosure delays [have] pushed some defaults into later yearsâ€