More Real Estate Woes
More Real Estate Woes

The post on potential Australian Real Estate Woes has been updated to include this:


Remember, America wasn’t the only country with a housing bubble. The world’s central bankers let a global housing bubble development. As I noted in December 2008:

… The bubble was not confined to the U.S.

There was a worldwide bubble in real estate.
Indeed, the Economist magazine wrote in 2005 that the worldwide boom in residential real estate prices in this decade was “the biggest bubble in history“. The Economist noted that – at that time – the total value of residential property in developed countries rose by more than $30 trillion, to $70 trillion, over the past five years – an increase equal to the combined GDPs of those nations.

Housing bubbles are now bursting in China, France, Spain, Ireland, the United Kingdom, Eastern Europe, and many other regions.

And the bubble in commercial real estate is also bursting world-wide. See this.

Source: Naked Capitalism

It warrants its own post because it makes clear that there is no going back to the way things were. Bailouts aimed at restoring recent levels of credit growth and consumption are doomed to fail.

The size of the decline in real estate prices will relate to the magnitude of the rise. A rise equivalent to 100% of GDP in five years is quite a rise. There will be quite a fall. Normal practice will be to have an overshoot on the down side.

Australia is the great exception in having a credit induced housing boom without a bust. How long can it last? To answer this, look to China. For how long will the Chinese continue to buy and hold Australian houses? Not to mention Australian commodities. At least the Australian Government will be hard put to make foreign investors good on any losses, unlike the US with its bailout of Asian investors.

The West needs to wake up and smell the coffee. Reality is imposing itself on their pseudo-socialist dreams