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February update of Realty Bubble Monitor chart: Australia, Canada, USA & UK

click to enlarge ... more macro economic charts @ my Instablog & website
click to enlarge ... more macro economic charts @ my Instablog & website

Feb 28th 2011 monthly update ~ Realty Bubble Monitor

 

Overpricing of Median/Avg Home in January 2011:

$

  Bubble Today Bubble @ Peak
$68,000 Australia 20% $143k & 50% (2007)
$71,000 Canada 26% $78k & 30% (2010)
$-15,000 USA -10% $61k & 28% (2005)
£69,000 UK 76% £97 & 114% (2007)

June 1 2011 delayed FreeVenue public release of Feb 28th guidance @ our MemberVenue ~ The Real Estate Bubbles declined in all four nations in January, but mostly due to the transition to a new calendar year. The magnitude of overpricing fell $14k to $68k in Australia, $7k to $71k in Canada, $16k to $-15k in the USA & £7k to £69 in the UK.

With Canada's Housing Bubble declining to 26% in January from last month's 30% rate, this establishes 2010 as its Bubble Peak. This year's avg price would have to rise over $353k ($10k) to move the Peak to 2011. Canada, Australia & the UK face stifled economic recoveries due to the assault on disposable incomes by the weight of home costs. Added to the burden of high petroleum costs, the foundations are in place for new Recessions.



USA's Housing Bubble overcorrected to $-15,000 in January ... New Homes rose to $13k 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 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 above, the New Home Price has resumed the secular up trend and based on year-to-date data to the end of January is a surprising $13k above this year's target of $217k. 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 2010 and amid undulations had only recovered to 284k by January. As shown by trajectory in the chart, it is probable that new highs for the New Home Median 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 $13k (6% above trend & 2.7 P/I ratio) in January 2011. Using monthly data, January's $231k median price is down $32k (14%) 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 Price resumed the secular up trend in January 2009 and based on year-to-date annual figures to the end of January has now over-corrected $15k below this year's target of $174k. Using monthly data, February 2010's $165k median was down $64k (28%) 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 negative $15k (10% below trend & 2.0 P/I ratio) in January 2011. Using monthly data, January was down another $6k from the January 2009 price low.


Australia's Housing Bubble falls $14k to $68,000 in January

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 2011 is $412k. 2007 is considered the Bubble Peak as price in that year was 50% ($143k) above the trend line. The 2011 trend target is $344k. 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 $68k (20% above trend & 3.8 P/I ratio) in January 2011. Using monthly data January's median national price is down $18k from the high three years ago.


UK's Housing Bubble falls £7k to £69,000 in January ... UK Homes are still 76% overpriced

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 £69k (76% over trend & 4.0 P/I ratio) in January. Using monthly data, January's average national price was down £25k from the peak in 2007.


Canada's Housing Bubble falls $7k to $71,000 in January ... Price back to May 2010 Peak & Twice USA counterpart

With Canada's Housing Bubble declining to 26% in January from last month's 30% rate, this establishes 2010 as its Bubble Peak. This year's avg price would have to rise over $353k ($10k) to move the Peak to 2011.

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 $343k is 26% ($71k) 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. After falling $22k from the May 2010 Peak, the national average home price is within $4k of a full recovery.

With an annual avg price of $343k vs $158k in the USA, Canadian homes are still 116% more than their American counterparts. In summary, the Canadian Realty Bubble has transitioned from $78k (30% above trend) in December 2010 to $71k (26% above trend & 3.4 ratio) in January 2011. Using monthly data, January's average national price was down $4k from the peak in May 2010.