Thursday, August 4, 2011

Real Estate Bubble in United States, Canada, Australia and the United Kingdom

Realty Bubble Monitor looks at the Housing markets in English speaking nations US, UK, Canada and Australia. Canada’s Housing is now 32% above trend, just a tad below the 35% mark upon which the USA bubble burst.















Source: Realty Bubble Monitor

Australian median home prices had already detached from the long term Price/Family-Income ratio of 3.2 way back in 1997. The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments. Subsequent irrational exuberance swept the Price/Family Income ratio to an unsustainable bubble high of 4.8 in 2007.

UK average home price has also detached from its long term Price/Family-Income ratio of 2.0 way back in 1997. The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments. Subsequent irrational exuberance swept the P/I ratio to an unsustainable bubble high of 4.9 in 2007.

Canadian average home price moved away from long term Price/Family-Income ratio of 2.7 in 2002. P/I ratio hit a bubble high of 3.6 in 2011.

United States had record low interest rates coming out of the 2001 Recession enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments. Added to pent-up demand, this caused median price to rise above the long term Price/Income ratio of 1.8 starting in Y2k. As lending standards dissipated, irrational exuberance took the P/I ratio to an unsustainable bubble high of 2.8 in 2005.

Geir Solem

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