Housing Bubbles Ready to Pop
Housing bubbles are never good. Too many people fighting over too few houses drives the prices up and drives people to make irrational purchases based on prices and trends that just can’t continue.
Many people think that the strong desire to own a home is more an American phenomenon. The notion is that since home ownership is intertwined with our “American Dream” that other countries don’t have the same irrational markets and run on houses like we do.
But that just isn’t true.
We all know the fallout of our housing market’s 2008 crash and the effect it had on our own economy and the worlds. But many people forget to look internationally when it comes to housing bubbles. In fact, many of the economic woes that several European nations went through in the 2000’s (and that some continue to have today) were directly tied to their own housing bubbles.
Spain’s devastated economy was in part due to their overextended housing market. Much like our economy, when house prices crashed their economy went into the toilet. This led to massive unemployment and even more economic problems.
Economics and the world finance are not nation specific and when one nation has economic problems like a housing bubble burst, it can easily affect us all. No matter where housing bubbles form in the world, they have implications for us all.
So, with that in mind, here are the top five housing markets that could go “Pop” any time now:
The International Monetary Fund issued a warning early in November 2013 that housing prices were rising so quickly in Australia that they might “overshoot” the actual values of the properties.
In the nation’s biggest city, Sydney, home prices have risen by 13% so far in 2013 to record highs. The average home costs $718,122 which is higher than London and almost higher than New York.
Brazil’s economy and middle class have been exploding over the last couple of decades as the country becomes more of a global economic powerhouse. But that comes with costs.
Since January, home prices in Sao Paulo and Rio de Janeiro have risen 188% and 230% respectively. Housing prices are increasing at twice the rate that rents are and have doubled in the last five years. And instead of pumping the breaks, their government is making it easier for people to borrow and buy more.
In the early 2000’s New Zealand had to deal with a recession caused by a bursting housing bubble. And while they recovered like the rest of us, there are signs another bubble is building.
Borrowing costs are low again and home prices are quickly climbing. In Auckland homes are 17% more expensive than they were at the beginning of the year. Unlike Brazil however, the government is tightening lending and making it harder to get mortgages.
This one is really scary…
China is the world’s second biggest economy and a slump in their growth would have shockwaves all around the world. Everyone from Wall Street to Main Street would feel it.
Prices have risen at the fastest pace in three years all over the country. Luckily, the amount of mortgage debt that the average Chinese consumer takes on is less than what Americans and others subject themselves to. Combined with an economy that can be more easily controlled by the government, hopefully we won’t see a bubble pop here.
Yeah, we haven’t learned our lesson either when it comes to housing bubbles.
While not a nationwide phenomenon like it was prior to the 2007 crash, housing prices are quickly climbing in many markets around the country. And top economic officials have taken notice and are suggesting that the monetary policies which have kept mortgage rates low should be decreased.