patrick.net

What was the common cause that was also not also present in places with lesser price increases?

It is not principally credit, since the whole world experienced that (And the entire US experienced that) but many places saw no big price increases - even with the same credit conditions.

Wrong, wrong & wrong. It is precisely cheap credit in massive amounts that has fueled, nurtured and sustained the US/UK/AUS RE bubbles so long. That, plus the complete collapse in lending standards due to rise of international securitization of mortgage debt, increased government housing subsidies, relaxed oversight, etc.

Those nations that did NOT share the huge run-up in prices during the same period (Japan & Germany being good examples), either were in the crash/correction phase of a previous bubble --i.e., "out of sync" with the anglo-RE cycle-- or had far more restrictive credit/regulatory policies in place or both.

HARM,

Great thread. The continuation of UK and Aus bubble is one of the very few reasons for my self-doubt. I know, different societies, different laws, different mortgages and just about everything may be different.

So if they can achieve soft-landing, can US hope the same ? Very discomforting.

But even scarier is what you suggest. If these bubbles are related, they can collapse because of each other forming a vicious feedback loop. If so, I do not want them to be popped. For the sake of all of us, bulls and bears.

What about Asian RE markets ? Banglore, Dubai, Shanghai and so on. I read a news sometime ago proclaiming Dubai to be the biggest bubble of all. Are we going to experience a truly dark side of globalization ?

Sometimes I think Zephyr gets a kick out of playing devil's advocate with us, just for the heck of it.

I will bet anyone here there will be no macro deflation. I'll tell you what. You agree to pay me an agreeable inflation-index to the dollar if inflation is positive, and I'll agree to pay you that amount if inflation is negative. I'll enter into this contract from 6months to 2years, longer if it's a worthwhile amount.

Betting against central banks is best left to fools and hedge funds; which are at times one in the same.

Betting against central banks is best left to fools and hedge funds; which are at times one in the same.

Life is the journey of a fool anyway.

I think it was common cause:

1) historically low interest rates worldwide, largely brought about by US Fed keeping rates low post 9/11 (and post tech wreck?) with international flow-on effects

2) liberalised credit products from lenders -- international banks realised they could lend much more without increased risk of foreclosure, and offer more investor 'products' -- e.g. investor loans at the same interest rates as home buyers. here, they traded on the similarities between housing markets rather than differences.

possibly 3) get rich quick spruikers encouraging all and sundry to buy investment properties, 'plan for retirement', avail themselves of low interest rates, etc, etc. a la robert g. allen, carlton sheets, etc. booming prices seemed to really bring them out from the woodwork...

other effects noted here have been the increased participation of women in the workforce, particularly coming into the 1980s, thus creating a bidding war in housing in the best areas (best schools etc) of 2 incomes vs 1½ incomes vs 1 income, etc... plus a downsizing of families -- a downward secular trend from 3-4 children to 1-2 children... so increasing income and decreased expenses seems to get soaked up into housing bidding wars, whereas we expect the price of all other commodities to come DOWN over time, availability of raw materials not withstanding.

and lastly, the introduction of tax breaks, whether for investors or home buyers...

However, I now don’t think we’ll see a catastrophic bust here if US demand falls away (except perhaps in Perth). It’s far more likely that the $A would in that case retrace back to the levels of the late 90’s, even against a declining $US, so nominal house prices would only have a further mild decline. In fact, I wouldn’t be surprised to see a long period of flat nominal prices.

the only counter I would have to this is simply that the pool of wealth and available equity will become exhausted -- as noted elsewhere, the boom can be a little illusory as only a small % of properties are on the market during the boom years. since house prices are ultimately underwritten by wages and salaries, whether by tenants or home buyers, there is a natural 'cap' to prices, which is partly why politicians don't worry too much about housing booms, believing it it self-correcting, and therefore one less thing to worry about.

once the pool of wealth and equity and all that is exhausted, the next generation will potentially be able to get property at a discount -- unless they are prepared to spend, and are expected to spend, 60% of their net income on housing and live in an impoverished culture. i'm still concerned about the proportion of new mortgages that are for investment, though, as the alternative scenario is one of creating a two-tier society of landlords and renters. direct govt intervention may be required (the New Home Owners Act of 2007), or else the reality of high pricing with no capital gains in the foreseeable future may be enough to deter even the stupidest investors and cause a rout of the seminar hustlers...

and even 6) lowered commodity prices for cars, whitegoods, electronic equip etc due to offshoring also frees up more capital in the household budget for bidding wars in housing -- anything you saved buying a cheap DVD or steak knives is soaked up by housing in aforementioned bidding war. it's a very foolish loop indeed...

But even scarier is what you suggest. If these bubbles are related, they can collapse because of each other forming a vicious feedback loop. If so, I do not want them to be popped. For the sake of all of us, bulls and bears.

i really don't care what happens to materialistic, pointless capitalist societies, where the pursuit of 'happiness' is leaving us miserable and more stressed and overworked than ever, or wallowing in existential despair...

the vices have actually been elevated into virtues, just about all 7 of them: pride, envy, gluttony, lust, anger, greed, sloth... what's that about? and the virtues such as charity, kindness, and altruism have been denigrated as unworthy -- the poor should take care of themselves and deserve their lot, etc...

yeah, i talk to people around the world, and they always have exactly the same cold with the same symptoms at the same time, thanks to the joy of travel... ;)

could be. although we are learning more about microorganisms and coming up with new vaccines and cures every day. the advent of HIV meant that scientists had to study the 'life cycle' of viruses in great detail for the first time, and that study is flowing into new anti-virals. apart from vaccines for measles, etc. and we are on the threshhold of playing god with the human genome project, gene therapy, etc...

i think the price of oil and eventually running out is more of a threat to ongoing development... high oil prices in the present could lead to recession and house price deflation...

ajh,

The same year the Po-Po Police released Snychronicity Joe Walsh put out "You bought it, You name it" which was technically far superior than anything the Po Po ever put out. Sadly it was dismissed as eccentric and R+R was put into an irreversible nose dive from which it has never recovered. The Police put out pop tunes that were instantly recognizable and more importantly, instantly likeable. Kind of like peppermint schnapps. (To this day you can't even "wave the cap" under my nose without getting an involuntary reaction). On the other hand "You bought it" was ugly from track ONE and yet in time I grew to appreciate it and still listen to it today. Not one song made the FM radio.

You bought, You name it, pretty much sums up the housing bubble.

there was a study done by Treasury recently that suggested a nasty flu like HK flu or the one after WWI would cause economic problems, but that the survivors would 'benefit from the assets'. nice. glad someone is thinking these hypotheticals thru. i was so appalled by the reasoning i posted it on my blog...

Bird flu threatens misery for millions

Peter P,

What do you think of Warren Buffet getting married at his age? Who's the lucky gal? Anyone heard? Please tell me she was born in the same century as Warren B! This isn't one of those Marla Maples look-alike kind of deals is it?

Conor,

Those are big sky macro questions; and my opinion probably isn't worth much more than yours for answering very long term questions.

My opinion is that it all centers around real growth, mostly as defined by the Solow and related theories. In the very long run, real growth is only defined by productivity, which itself reduces to technology advancement. Population growth is offset in the long run with capital creation.

I don't necessarily agree that credit creation need be deflationary. So long as long term credit does not exceed long term real growth, then there is no net deflationary effect.

What I do agree with is that we've (collectively we, meaning anglo-style western market capitalism, which defines the global economy) committed ourselves to ever increasing growth. In the very long run this can only mean forever growing (but not necessarily accelerating) technological enhancements.

So in my mind, and ignoring obvious major reset events like global wars, it is a race between what the credit & capital enables: technology, and our ability to exploit that technology without wiping ourselves out.

In the very very long run, this will eventually lead to progressively expanded markets, resources, and growth opportunities. Mostly in the form of ocean and space territorial conquests.

For that matter, does a rapidly deteriorating housing & credit market here portend doom for these overseas markets?

I hope so :}

DinOR,

Buffett has been living with the same woman for decades. He had a very open marriage with his first wife and the three of them were allegedly on great terms with each other.

As for deadly influenza or a more communicable version of Ebola (Gawd that would be a messy way to die), the upside is that killing large populations this way is less traumatic on human civilization compared to war.

If humanity gets its act together, such a pandemic might shake humanity out of its bad old ways and result in a cultural/technological rebirth. (As with Europe and Black Death, which temporarily relieved the population pressure brought on the high Middle Ages + Little Ice Ages, lead to loosening of the manor-serf based system, and may have kick started the Renaissance.)

StuckInBA Says:

The continuation of UK and Aus bubble is one of the very few reasons for my self-doubt. I know, different societies, different laws, different mortgages and just about everything may be different.

On top of that, whatm0980 are the consumer savings rates in AU and UK, or the rest of Europe for that matter? I can't imagine them being nearly as bad as in the US. This would suggest that the average US homedebtor has no reserve when the $hit hits the fan. I'd argue this makes the US situation a potentially worse.

Minutes from the Fed Aug. 8 meeting:

http://www.federalreserve.gov/FOMC/minutes/20060808.htm

"All members agreed that the statement to be released after the meeting should convey that inflation risks remained dominant and that consequently keeping policy unchanged at this meeting did not necessarily mark the end of the tightening cycle. They concurred that an indication that economic growth had moderated was appropriate, and a consensus favored citing the same reasons for that moderation as in the June statement. Members also agreed that the statement should both mention factors contributing to the likely moderation of inflation pressures over time and reiterate the forces that were seen as having the potential to sustain inflation pressures."

Talk about fence-sitting!

astrid,

"on great terms with each other"

I'm sorry, that's disgusting AND weird!

"I’m sorry, that’s disgusting AND weird!"

Sorry, didn't mean to imply old people threesomes. Buffett picked up the current wife after he became somewhat estranged from his first wife, but the three of them would show up at events together and sign Christmas cards together.

"I think this is unlikely due to EROEI issues. Putting anything into space (outside of earth orbit - i.e. where any “resources” might be) is so energy demanding that the returns would have to be truely “astronomical” for it to be viable. Also as the term SPACE implies -there just is notmuch there."

Fusion or a vastly improved fission power production would be essential. It's all a pipedream that'll do nothing for us, or our kids, or our kids' kids unless friendly aliens drop by to lend a hand

astrid,

Apologies to all! I misunderstood, but that's still a little weird. I guess when you have that much money (even in Omaha) it's perfectly acceptable.

Ryno73/alien,

I'll chalk that one up to "bubbletainment" and nothing more. My question is how many of those "homes for sale" searches were accompanied by the advanced search parameters of +reduced, +motivated, +desperate?

alien,

The problem isn't EROIE, or even simple EVA, it's that the fixed costs of such systems is too high to guarantee the positive future flows of such a long harvest time period.

But then, if you were looking at the "Colonize the New World" problem with these kinds of economic and financial constraints, you would have come to the same conclusion.

What “resources” were you intending to extract from the ocean?

Quiz:

What current common resource is rapidly diminishing in consumption per capita terms?

Even the US will experience regional shortages of this resource, naturally increasing its commodity value over time.

The Oceans happen to be full of this resource, but with a catch. Some pretty large scale energy production and specialized resource processing facilities need to be designed and built.

And then there's the derivative uses of this great resource, one of which is currently under proof of concept development in many countries; intended to use a sub component of this resource as a transportable energy store.

The problem with economic justification analyses is that they are static, and the framing problem domain is dynamic and often surprising.

Heavy water?

I'm personally hoping to see developed world zoning codes move towards underground homes. Not only does this decrease cooling and heating costs and allow for higher construction density, but it would allow a more natural plant covering on top of the housing and relieve urban heat island effect.

The recent 42% jump in online queries about homes for sale could suggest that prospective buyers sat on the sidelines this summer waiting for home prices to fall and are now returning to the market.

I do a lot of searches to see if the market is dead yet.

As for deadly influenza or a more communicable version of Ebola (Gawd that would be a messy way to die), the upside is that killing large populations this way is less traumatic on human civilization compared to war.

How about A Taste of Armageddon? Perhaps it is a better way to fight wars.

What do you think of Warren Buffet getting married at his age?

I have nothing to say.

The recent 42% jump in online queries about homes for sale could suggest that prospective buyers sat on the sidelines this summer waiting for home prices to fall and are now returning to the market.

Sorry, that was my fault. I'll stop doing so many searches.

Or just FBs worried about their home "equity" checking out the competition.

Haha. You beat me to it. My line was…

Maybe it’s from me hitting refresh so often to see which houses are reducing their prices.

In semi-seriousness, I actually do a lot of searches to look for content to post on my site (http://burbed.com).

Lately, there's been too much stuff! :(

"Or just FB's worried about their home "equity" checking out the competition". LOL!

Honey, we've been on the market for 11 days now and we damn sure don't have next months first and second payment, check how the Jones' are doing on Zillow to see if our latest price reduction is lower, again.

Like I say "Bubbletainment"

I cold call for MB buddy and a lot of the "leads" are in SoCal and every third person tells me, "Oh, we're listing it, so we won't be needing your services!" Some w/confidence and even bravado (clueless) most others are clearly frantic! Research is great but there's NOTHING like cold calling if want "da goods".

George,

I'd say you're on a roll, don't stop now!

alien,

I could swear Randy H was talking about components for a fusion or fission reaction. Wasn't there some stupid rumor about the Chinese or Rumsfeld or somebody going to the Moon to look for some kind of nuclear fuel.

Amsterdam, the Netherlands, thanks for your analysis.

Amsterdam, the Netherlands,

Thanks for the global perspective. Agreed, not looking good. Just curious though, what can you tell us about Vestas, the wind powered generation company? They're starting to ship a lot of units here in the Pacific NW and people are....... well curious.

Alien

If it is fresh water you are after you DON’T need large scale energy production

Now who's being unrealistic. People who propose things like There are a number of initiatives to build low-tech facilities to reap freshwater supplies by mimicking the characteristics of insects are at best ignorant about the scale of the problem or at worst disingenious. If you want there to be less people and less technology, then just state that up front. It is a noble goal in some people's minds. As to composting, what exactly do you think is occurring in landfills? Or are all those methane recapture facilities I see in landfills-turned-parks just for show? By the way, existing large-scale desal facilities are powered by fission reactors. It is a very efficient, low emission system.