The Global Real Estate Obsession

Interesting Real Estate/Housing discussion in, of all places, the NYT Week in Review. It turns out that "cheap credit worldwide fueled the housing market, making mortgage payments less costly." (You don’t say?) "Homeowners refinanced their mortgages at lower rates, and the savings went into consumer spending. They took out home-equity loans on houses of rising value, and spent that borrowed money on cars, clothes, furniture, restaurant meals and vacations. The higher consumer spending and the soaring value of the home nest-egg have kept the global economy chugging along."

Juts as Greenie planned it. But you knew that already; what you may not have realized is how globally widespread the housing boom has become:

The housing market in California may look like a textbook case of superheated "irrational exuberance," but then how does one explain Spain? Home prices there have risen 130 percent since 1997, twice the run-up in the United States.

These days, house price vertigo is more than a local or national condition. It’s a worldwide phenomenon. The American housing boom in recent years is nothing compared with the price run-up in countries like France, Spain, Britain, Ireland, Sweden and Australia, even though markets in Australia and Britain have cooled in the last year.

Quite fascinating; I knew that the UK had a big run up, and that Australia’s Real Estate market had appeared to top and start reversing already, but I was unaware the phenomena was so robust globally. 


Rising Prices Abroad:

click for larger graphic

Nyt_global_rise_chart

Graphic courtesy of NYT

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How Global?
Consider this:

"Million-dollar two-bedroom apartments are not only a fixture of New
York, but of London, Paris and Hong Kong. In New Zealand, housing
prices rose by more than 16 percent from 2003 to 2004. In Ireland, they
rose more than 10 percent in that period.

The rise in prices is worrisome, because the international housing boom
is a byproduct of globalization. A house on a plot of ground is the
most local of assets. But the financial markets that make it possible
for people to borrow money to buy a house, or speculate, are
increasingly open, international and linked.

Interest rate policies in the industrialized world tend to move in
lockstep, usually led by the United States. A growing community of
affluent professionals around the world now buy second homes and invest
in housing abroad.

The economic links act as a self-reinforcing network that has fueled
the global surge in house prices but would also likely magnify the pain
on the way down. The ripples would extend well beyond the housing
markets. A fall in American house prices, for example, would crimp
consumer spending – and free-spending Americans have supported growth
in many export-minded nations, notably China."


What does $1M buy around the world:

click for larger graphic

Nyt_1m_around_world

Graphic courtesy of NYT

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BTW, a friend has a nice 3 bedroom, 1,500 sq ft doorman building in Brooklyn you can pick up at the bargain price of $850k. (email for more info)

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Source:
Real Estate, the Global Obsession
Steve Lohr
NYT, June 12, 2005
http://www.nytimes.com/2005/06/12/weekinreview/12lohr.html

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What's been said:

Discussions found on the web:
  1. Danielle commented on Jun 12

    And to think that many US economists think European rates are not low enough…

    I’d hate to see the real estate frenzy if rates were lower!

  2. alex norman commented on Jun 12

    They should have shown what $1m will buy in my hometown of Santa Monica, CA.

    The answer: if you want a detached house on its own lot: a tear-down.

  3. None of Your Business commented on Jun 12

    The Global Real Estate Obsession

    The Big Picture has a great article online about the Global Real Estate Obsession. It seems as though most of the developed nations around the world are enjoying hugely inflated real estate prices.

  4. Jon H commented on Jun 12

    Those 3 bedrooms in Dublin must be teeny-tiny.

  5. brian commented on Jun 12

    if the whole premise of the real estate appreciation was ultra-low interst rates and older workers buying second/third homes, then why did the Japanese market fall so far and is still depressed given that all throughout the 90s interest rates were cut to one percent and because the Japan has on average an older population, those in position to buy should have been at an age when home/apartment buying was most affordable?

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