Société Générale’s Albert Edwards discusses global housing prices and the ongoing economic recovery in light of coordinated central bank activity. I like the preface to his discussion:
"¢ We have regularly explained that there are two types of market and economic commentator: those who will, if a trend persists long enough, embrace it and extrapolate the trend forward into the indefinite future. Therein lies the essence of great investment disasters the market comes to believe a cyclical investment is actually a "?growth' investment and a whole array of assets end up massively overpriced going into a cyclical melt-down. Then there is us.
"¢ Along with the Great Recession of 2007, in our working lifetime we have seen other examples of misguided extrapolative thinking that ended in the severe mis-pricing of assets ahead of a crash – technology stocks at the end of the 1990s, the emerging Asia miracle in 1997 and Japan in 1989 are all examples where there were clear bubbles about to burst. In each case, any attempt to warn clients was met with a steaming dollop of derision.
The charts and tables are rather instructive:
Worlds Most Expensive Cities
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Housing Affordability Ratings by Nation Source: The 2012 Demographia International Housing Affordability Survey (See also the US National City affordability table after the jump)
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Note that in the US, Florida is often used as an example if where prices have fallen so greatly as to produce enormous bargains. The data suggests otherwise. Miami for example has still yet to revert to pre credit bubble levels:
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Rumors of Affordability in Florida have Been greatly Exaggerated Source: The 2012 Demographia International Housing Affordability Survey
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Source: The biggest bubble in recent history is heading for the mother of all hard landings Albert Edwards Société Générale, May 3 2012
National US City affordability Source: The 2012 Demographia International Housing Affordability Survey
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
Some background on Toronto’s shady backdrop:
http://opinion.financialpost.com/2012/05/04/taxpayers-also-victims-of-hot-money-behind-canadas-condo-bubbles/
With mortgage interest rates <50% what they were in 2000 and <60% of what they were in 2006 a simple price / income measure seems like an obviously incomplete way to look at affordability.
I agree that many metrics should be bench marked to take cheap financing costs.
It looks like CRA and FNM sure have a global reach!
Haven’t been to any of these markets other than Vancouver, but from everything I’ve seen, it look like he’s right, although I do have to say that I think Texas hasn’t really bottomed out because of the current oil bubble. When oil dropped in 2008 after the last big bubble, there was some severe stress around here that was only relieved by the Fed and China driving up prices. My guess is we won’t see the final POP in some of these places until China finally slows down because they are dependent on selling raw materials to China, e.g. Australia, Canada, and the oil-dependent areas.
BR: over the past few days have been seeing a lot of what looks like the mobile pages again.
So… in theory the “preface” above is wonderful. The problem with:
…all examples where there were clear bubbles about to burst.
Is that 90% of the people (pundits, economists, fin mgrs) who claimed to “call the recession” or “call subprime”. They were almost ALL calling it in 1993 or even 2003. Plenty made billions (and collectively trillions) on the run-up.
The key to good investing is to make a decent run profiting from both BOOMs — and — BUSTs. Those who always see one side… are at best OK or maybe lucky. And if anything… its really only the “bulls” who have ever survived a longer term.
Ton’s of “credit takers” for calling the housing bubble got most or all of it wrong. They were either wrong on timing (most). Or wrong on the mechanism (interest rate resets, ha!). Lots of them would’ve shorted USTs or something. But now they act all, “I told you it was a bubble”.
So its important not to say… “it was clear”.
Austin real estate has been popping in the past year. quick sales and price increases everywhere. economic factors aren’t equivalent to 2000. I still think everyone has excess “cash” (read as liberally granted credit) that’s keeping consumption at the level it’s at.
I think median houshold incomes are getting distorted upward by the necessity of single adults moving in with relatives thus increasing the number or persons per houshold. Housing is out of reach of most single workers in the US in my opinion.
For most people affordability is about how much of their income has to be dedicated to the mortgage payment. For that issue the most useful metrics would be median monthly payment (on a median prices house with a standard loan and current interest rates) as a % of median monthly income. It would be hard to get that data, so maybe some kind of correction factor based on interest rates (and their effects on monthly payments) would be the best approximation.
Edwards has been wrong for three years. He needs to start thinking about another position in the fortune telling industry.
Ignore this guy”s guesses and you will do fine. Markets don’t operate on the promise of ‘having to revert.’ They have taken a huge hit, who’s to say it hasn’t bottomed? And that’s all he has some ephemeral desire to want more reversion. Absolutely un-empirical and a waste of ink. How does he know. Ask yourself how do any of them know what will happen?
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