Tuesday, May 19, 2009
Transatlantic housing bubbles
Thanks to News N Economics for this graph. It shows housing bubbles in several European countries compared to the U.S. Notice that the bubbles in Ireland, Spain, and the U.K. dwarf ours. This graph also suggests we are most of the way down. (The graph appears to be inflation-adjusted.)
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Most of the way down?
ReplyDeleteLooks to me the slope is severely negative....we're no where near most of the way down. And anyone thinking we're going to suddenly flip around is dreaming. That graph of Ireland's recovery is severely suspect at best.
The graph is showing a ratio of housing prices to rent, so no need to adjust for inflation, doing so wouldn't tell you anything. (A banana-apple ratio is 1 whether the banana and apple each cost $1 or $10 dollars each).
ReplyDeleteAnd there are too many variables in national laws to make any assumptions based on this graph. In the US, part of the difference between the price of renting and the price of buying is the deduction from taxable income the amount paid in interest on a mortgages. For this graph to mean anything, such factors would need to be considered.
A look at the Germany line on the graph is instructive. Tax laws there gave very generous breaks to housing investors after the unification with East Germany in the early 1990s, creating a housing boom that lasted until 1998--when the tax break ended, and a period during which housing prices were not increasing in the US. Prices have been just about flat in Germancy since their own bubble ended over 10 years ago.
What that line may more likely represent is what the US housing market looks like for the next 10 years--or at least the 10 years after politicians in Washington stop trying to artificially prop up the housing bubble to stop the market correction that will take place regardless of what they do--either quickly if they stop trying to reinflate the housing market, or over a long period of time if they continue.
I think Obama has some serious plans in order to stop the housing crisis, but it is still uncertain to me when those changes are going to be reflected in the real market
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