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Realty Bubble Monitor monthly 4-nation update

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Realty Bubble Monitor updates overpricing in October 2010:  Australia - $80k, UK - £76k, Canada - $76k & USA - $1k

Nov 30 2010 ~ Real Estate Bubbles rose $1k & £1k in Canada & UK in October to $76k & £76 respectively, while stable at $80k & $1k in Australia & USA.  Canadian prices continue to be double counterparts in USA.  After correcting in January 2009, American home prices have resumed long term trend.  UK, Canada & Australia face stifled economic recoveries due to assault on disposable incomes by weight of home costs ... possibly foundation for Recessions.

 click chart for USA New Homes graph & full discussion...



 Australia's Housing Bubble stable @ $80,000 in October

Australian median home prices had already detached from the long term Price/Family-Income ratio of 3.2 way back in 1997.  The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments.  Subsequent irrational exuberance swept the Price/Family Income ratio to an unsustainable bubble high of 4.8 in 2007.

The year-to-date annualized price for 2010 is $410k.  2007 is considered the Bubble Peak as price in that year was 50% ($143k) above the trend line.  The 2010 trend target is $330k.  As shown by trajectory in the chart, it is probable new highs for median Home Price will not be set 'til 2017.  In summary, the Australian Realty Bubble has transitioned from $82k (26% above trend) in December 2009 to $80k (24% above trend &  4.0 P/I ratio) in October.  Using monthly data October's median national price is down $20k from the high three years ago.


  UK's Housing Bubble down to £76,000 in October ... UK Homes are near double the long term trend

The UK average home price had already detached from the long term Price/Family-Income ratio of 2.3 way back in Y2k.  The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments.  Subsequent irrational exuberance swept the P/I ratio to an unsustainable bubble high of 4.9 in 2007.

When the annual price peaked in 2007 @ £181k, it was £97k (114%) above the trend line.  As shown by the trajectory in chart#1, it is probable that new highs for the annual price will not be set 'til 2046.  In summary, the UK Realty Bubble has transitioned from £68k (77% over trend) in December 2009 to £76k (85% over trend & 4.3 P/I ratio) in October.  Using monthly data, October's average national price was down £22k from the peak in 2007.



 Canada's Housing Bubble rises to $76,000 in October ... Avg Price nearly back to May 2010 Peak

The Canadian average home price detached from the long term Price/Family-Income ratio of 2.7 way back in 2002.  The onset of record low interest rates shortly thereafter enabled consumers to buy more expensive homes w/o increasing their mortgage payments.  Subsequent irrational exuberance has swept the P/I ratio to an unsustainable bubble high of 3.5 in 2010.

The year-to-date annual price of $337k is 29% ($76k) above the trend line.  As shown by the trajectory in chart#1, and assuming a 2010 Peak, it is probable new highs for the annual price will not be set 'til 2017.  Unlike Australia, the UK & USA, Canada's real estate sector only just recently commenced its inevitable correction.  In comparison, the USA Housing Bubble was 28% ($61k) above the P/I ratio trend at its peak in 2005.  We are observing the peaking in real time!  After falling $22k from the May 2010 Peak, the national average home price is within $2k of a full recovery.

With an annual avg price of $337k vs $173k in the USA, Canadian homes are still 95% more than their American counterparts.  In summary, the Canadian Realty Bubble has transitioned from $67k (27% above trend) in December 2009 to $76k (29% above trend & 3.5 ratio) in October.  Using monthly data, October's average national price was down $2k from the peak in May 2010.

  USA's Housing Bubble was a mere $1,000 in October ... New Homes were $4k above trend

 New Homes:   Record low interest rates coming out of the 2001 Recession enabled consumers to buy more expensive New Homes w/o increasing their mortgage payments.  Added to pent-up demand, this caused median price to quickly detach from the long term Price/Income ratio of 2.5 in 2002.  As slack lending guidelines and outright fraud became entrenched, irrational exuberance took the P/I ratio to an unsustainable high of 3.1 in 2005.

Annual & monthly median prices peaked in 2007 @ $247,900 & $262,600 respectively.  Despite both rising afterwards, we still consider 2005 as the Bubble Peak as that year's price was a record 22% ($44,000) above the trend line.  Using annual figures, a classic "return to the mean" correction was virtually complete by January 2009 ... with final median price a mere $1,800 shy of that year's target.

As seen in chart#2, New Home Prices have resumed the long term trend and based on year-to-date data and are presently a mere $4k above this year's target of $215k.  More importantly with regards to the economic recovery, annualized unit sales had recovered to 414K by April 2010 from the 339k low in January 2009.  Sales plunged to a troubling five-decade low of 274k pace in August, stabilizing at 280k last month.  As shown by trajectory in the chart, it is probable that new highs for New Home Price will not be set 'til 2015.  In summary, the USA New Home Realty Bubble has transitioned from $2k (1% above trend) in December 2009 to $4k (2% above trend & 2.6 P/I ratio) in September.  Using monthly data, October's $202k median price is down $61k (13%) from the all time high of $263k in March 2007.


 Existing Homes:  Record low interest rates coming out of the 2001 Recession enabled consumers to buy more expensive Existing Homes w/o increasing their mortgage payments.  Added to pent-up demand, this caused median price to rise above the long term Price/Income ratio of 2.0 starting in 2002.  As slack lending guidelines and outright fraud became entrenched, irrational exuberance took the P/I ratio to an unsustainable bubble high of 2.8 in 2005.

The annual price peaked in 2006 @ $221,900 & the monthly median had its high of $229,000 in 2007.  Despite subsequent rising prices, we still consider 2005 as the Bubble Peak as that year's price was a record 28% ($61k) above the trend line.

Existing Home Prices have resumed the long term trend and based on year-to-date annual figures to the end of October, classic "return to the mean" is in play .,,, in fact 2010's $172k target is being exceeded by a mere $1k.  Using monthly data, February's $170k median was down $59k (26%) from the all time high of $229k in June 2007.  More importantly with regards to the economic recovery, annualized unit sales had quickly improved 19% from the January 2009 trough, but re-collapsed to a multi-decade low this past July.  As shown by trajectory in the chart, it is probable that new highs for Existing Home Price will not be set 'til 2018.  In summary, the USA Existing Home Realty Bubble has transitioned from $600 (0% above trend) in December 2009 to $1k (1% above trend & 2.0 P/I ratio) in October.  Using monthly data, September was up $6k from the January 2009 price low.