"Buy land, they're not making any more of it" is an adage that has never been more true than today. This NYT story finds "irrational exuberance" for real estate all over the world.
An excerpt:
THE housing market in California may look like a textbook case of superheated "irrational exuberance," but then how does one explain Spain?
Home prices there have risen 130 percent since 1997, twice the run-up in the United States.
The American housing boom in recent years is nothing compared with the price run-up in countries like France, Spain, Britain, Ireland, Sweden and Australia, even though markets in Australia and Britain have cooled in the last year.
Million-dollar two-bedroom apartments are not only a fixture of New York, but of London, Paris and Hong Kong. In New Zealand, housing prices rose by more than 16 percent from 2003 to 2004. In Ireland, they rose more than 10 percent in that period.
The rise in prices is worrisome, because the international housing boom is a byproduct of globalization. A house on a plot of ground is the most local of assets. But the financial markets that make it possible for people to borrow money to buy a house, or speculate, are increasingly open, international and linked.
Interest rate policies in the industrialized world tend to move in lockstep, usually led by the United States. A growing community of affluent professionals around the world now buy second homes and invest in housing abroad.
The economic links act as a self-reinforcing network that has fueled the global surge in house prices but would also likely magnify the pain on the way down. The ripples would extend well beyond the housing markets. A fall in American house prices, for example, would crimp consumer spending - and free-spending Americans have supported growth in many export-minded nations, notably China.
"The real concern is that the housing boom extends across so many countries this time," said Susan M. Wachter, a professor of real estate at the Wharton School of the University of Pennsylvania. "That just raises the stakes, and the risk, when the music stops."
That's the end of the excerpt, but you should read the whole story.
I really wonder when the music is going to stop -- and it has to at some point. My suspicion is people are paying crazy prices for houses because they think the price will keep going up.
But I think that's a little like Wil E. Coyote walking on air because he thinks he's on solid ground. But eventually he finds out the truth and plunges into yet another canyon.
An economic shock of some sort could rock that market.
But maybe I'm being overly pessimistic. This Toronto Star story said the following, based on a study by the RBC Financial Group:
Higher house prices, slower income growth and increased utilities costs slightly eroded housing affordability despite lower borrowing costs in the first quarter of 2005, it says.
It described Ontario's housing market as "a good example of a gradual and orderly slowdown."
Housing prices are continuing to climb, but at a moderate rate. Sales volumes have declined fairly steadily from their spring 2004 peak and were down about 13 per cent by March.
And the number of new listings is down only about 6.5 per cent from last year's peak.
"This slight degree of extra supply relative to demand has allowed the market to hover in a sweet spot on the border between a balanced and a seller's market, which means prices can grow at a moderate rate that pleases sellers but doesn't deter buyers," the report states.