Housing bust version II is now in play with a few notable differences, interest rates are near a record low, and the big falls are being registered in high-end properties, typically expensive metrópolis.
Housing bust version II is already global
The last housing bust was characterized by a period of high-interest rates which led to defaults of sub-prime mortgages in the US home market.
This latest housing bust could have its origins in converting fiat currency (fake money) into real value
Since the financial crisis of 2008 the central bank has flooded the system with trillions of dollars of liquidity. For the last decade, the reverse wealth effect has been created by those who have access to the “easy money” who then invest in hard assets, such as real estate.
The current housing bust could already be reversing the wealth effect
London housing bust is underway with February’s prices taking their biggest one-off hit since the last 2008 financial crisis.
The average price of residential property in London tumbled 2% in February from January, the sharpest monthly drop since November 2008, when the City was grappling with the fallout from the Lehman Brothers bankruptcy, according to UK’s Office of National Statistics.
The most exclusive boroughs of the city center, often referred to as Prime Central London has been hit hardest, with prices falling an estimated 14% from their 2014 peak.
For the 12-month period, the average price in London has dropped 3.8%, the sharpest year-over-year fall since August 2009, during the Global Financial Crisis. The average home in London is now worth £459,800 ($600,000), down 5.9% from the peak in July 2017, according to the UK’s Office of National Statistics.
“The London sales market is in a prolonged downturn and the current uncertainty surrounding Brexit is clearly impacting consumer confidence,” Foxtons, one of London’s largest real estate agencies, said in its latest annual report. “We do not expect market conditions to improve significantly until the political and economic landscape becomes clearer”.
In short, with the Brexit saga being delayed until November’s Halloween political uncertainty remains rampant so we can probably expect the London housing bust to gain momentum going forward.
Staying with Europe the housing bust has been particularly acute in Rome.
House prices in Rome have dropped by 25 percent compared to 2010, according to the national statistics authority ISTAT.
Paris remains an enigma regarding the housing bust in Europe
The French capital’s real estate prices have become even more pricey in 2018 as the property costs reached another historic peak and are not going to go down, paving the way for another record this year.
Purchasing a place in the heart of the City of Light cost buyers 5.7 percent more in 2018 than a year before, according to the data released by the Chamber of Notaries of Greater Paris. Those who wanted to live in the city center had to spend €9,750 ($11,100) on the average per meter. As such, a small one bedroom apartment could be sold for more than $444,000.
Last year’s record is expected to be beaten in 2019 as the Chamber of Notaries predicted a further price rise in the coming months
So despite the latest Yellow Vest protests turning into a battleground with 227 arrests, cars and public property set on fire and tear gas and water cannons fired by police property prices in Paris remain resilient.
Will the contrarian investing strategy of “the time to buy is when there’s blood in the streets” come up trumps going forward?
Across the Atlantic New York real estate market could also be showing early signs of a housing bust
Home sales in Manhattan fell 14 percent last year, the industry’s steepest drop since 2009, according to a report from Manhattan real estate companies Douglas Elliman and Miller Samuel. In the fourth quarter, the median price for an apartment in New York City fell below $1 million for the first time in three years.
Nine-county San Francisco Bay Area: -10.8%.
Despite “the lowest interest rates in more than a year,” sales volume in California dropped 6.3% in March, compared to March last year, to a seasonally adjusted annualized rate of 397,210 houses, according to the CAR.
But it is in the southern hemisphere, down under in Sydney, Australia where the housing bust is referred to as a bloodbath.
House prices in Sydney and Melbourne could fall by more than 40 percent in the “worst crash since the 1890s depression”, a new report warns. We’re now in stage two of the “bloodbath”.
House prices in Sydney and Melbourne could fall by up to 25 percent this year alone and “there’s a chance they could fall by half” in the coming “property bloodbath”, an economist has warned.
Housing bust version II is a global crisis, it is the blowback of the central bank’s greatest monetary easing experiment in the history of finance
Zombie companies litter the business landscape and property bubbles cloud the skyline of our great metropolis
The global housing bust is something the Fed can’t ignore, bearing in mind the real estate is a highly leveraged asset. A tidal wave of mortgage defaults would turn debt money into junk and decimate the banking cartel’s bottom line.
So the Fed’s patience to pull the reins on its reins on its normalization policy isn’t likely to alter in 2019.