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Realty Bubble Monitor gauges Aug/2011 overpricing in Australia, Canada, UK & USA

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

 Sept 30 2011 monthly update ~ Realty Bubble Monitor

 Overpricing of Median/Avg Home in August 2011:

$

price rise/fall past 90 days med/avg price Bubble Today Bubble @ Peak
$110,000 - $ 900 Australia 36% $179k & 71% (2007)
$90,000 - $2,000 Canada 33% $90k & 33% (2011)
$ 2,000 + $ 100 USA 1% $77k & 35% (2005)
£90,000 - $ 100 UK 120% £111k & 157% (2007)

Over the past 30 days, the realty bubbles were stable in Australia, UK & USA and slipped $5k in Canada.  Since peaking in May 2011, Canada's avg home price has been in free fall ... plunging an avg $2,000/week over the past 90 days.  Canada's bubble burst upon striking the 35% above the Price/Family-Income ratio threshold ... precisely the same lofty metric at which the USA bubble collapsed.  The Canadian avg home price is presently an incredible 2.2 x's its American counterpart!

Except for the USA, where homes are only 1% above the long-term trend, the UK, Australia & Canada face prolonged stifled economic activity due to the assault on disposable incomes by the weight of home mortgages and rent.  Added to the burden of cumulative high petroleum costs, the fundamentals are in place for new or double dip Recessions in all three jurisdictions.  UK families are at most risk with average home price today overpriced by 120%.  The Australian median home price is currently 36% overpriced.  The TRENDLines Recession Indicator gauged Canadian GDP @ -4% in July & -2.1% in August.

The Conservative Federal Gov't & Bank of Canada talking points blame the Japanese earthquake, EURO troubles & Justin Bieber but CMHC is clearly at fault for this downturn.  Canada was the last G-20 nation to fall into Recession in 2008 and the first one out - not by clever fiscal/monetary policy but because CMHC was pumping its housing bubble by its condoning of 5% minimum downpayments for its high-ration mortgage insurance coverage.  This economic contraction is solely a "made-in-Canada" malaise and has been foretold in this venue since March 24 2010.  It is scandalous the measure continues in place and Canadian taxpayers are clearly at risk.  It there is any sense of accountability in Ottawa, look for heads to roll at CMHC.


 Australia's Housing Bubble stable @ $110k in August

Australia's median home price detached from the long-term Price/Family-Income ratio of 2.8 way back in 1997.  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 swept the P/FI ratio to an unsustainable bubble high of 4.8 in 2007.

The year-to-date annual median price for 2011 is $413k.  2007 is considered the Bubble Peak as Price in that year was 71% ($179k) above the P/FI ratio trend.  The same metric infers median price should be only $303k this year.  As shown by trajectory in the chart, it is probable new highs for median Home Price will not be set 'til 2020.  In summary, the Australian realty bubble was $110k (36% over trend & 3.8 P/FI ratio) in August 2011.  And using monthly data, last month's $408k median national price is down $22k (5%) from the $430k high back in 2007.


  UK's Housing Bubble stable @ £90k in August ... UK Homes overpriced by 120%

The UK average home price detached from the long-term Price/Family-Income ratio of 1.9 way back in 1997.  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 swept the P/FI ratio to an unsustainable bubble high of 4.9 in 2007.

When the annual price peaked in 2007 @ £181k, it was £111k (157%) above the trend line.  As shown by trajectory in chart#1, it is probable that new highs will not be set 'til 2056.  In summary, the UK realty bubble was £90k (120% over trend & 4.2 P/FI ratio) in August.  And using monthly data, last month's £165 avg national price is down £21k (11%) from the £186 high back in October 2007.


 Canada's Housing Bubble down $5k to $90k in August ... 121% over USA counterpart

The Canadian avg 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/FI ratio to an unsustainable bubble high of 3.6 in 2011.

The year-to-date annualized price of $364k is 33% ($90k) above the trend line and a record 121% premium over the $165k American counterpart.  As shown by trajectory in chart#1 and assuming a 2011 Peak, it is probable new highs will not be set 'til 2019.  In summary, the Canadian realty bubble was $90k (33% over trend & 3.6 ratio) in August 2011.  And using monthly data, August's $350k avg national price is down $27k (7%) from the $377k record high back in May 2011.  Home prices fell $2,000/week avg over the last 90 days.

   USA's Housing Bubble stable @ $2k above trend line in August ... New Home Bubble down $1k to $9k 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.  Pro home-ownership incentives added to pent-up demand caused median price to quickly detach from the long term Price/Family-Income ratio of 2.4 in 2001.  As slack lending guidelines and outright fraud became entrenched, irrational exuberance took the P/FI ratio to an unsustainable high of 3.1 in 2005.  Annual median price rose to $241k in 2005.  Despite still rising for two more years, I consider 2005 as the Bubble Peak as the 2005 price was a record 27% ($52k) above the trend line.

As seen in chart#2 above, the year-to-date annual New Home Price ($226k) is $9k above our 2011 target of $217k.  More importantly with regards to the economic recovery, annualized unit sales had recovered to 408K by Aug 2009 from the 336k low in January of that year.  Sales plunged to a troubling five-decade low of 278k pace in the August 2010 pause, but had recovered (7%) to a 298k pace last month.  To add context, the build pace during the 2005 high was 1.4 million units/yr.  As shown by the chart trajectory, it is unlikely the New Home median price will set new annual highs 'til 2016.  In summary, the USA New Home realty bubble was $9k (4% over trend & 2.5 P/FI ratio) in August 2011.  And using monthly data, this month's $209k median price was up $5k (2%) from the 7-yr low in Oct 2010, but is still $54k (21%) below the all time high of $263k back 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.  Pro home-ownership incentives added to pent-up demand caused median price to quickly detach from the long-term Price/Family-Income ratio of 1.8 starting in Y2k.  As slack lending guidelines and outright fraud became entrenched, irrational exuberance took the P/FI ratio to an unsustainable bubble high of 2.8 in 2005.  The annual median price rose to $219k in 2005.  Despite still rising for another year, 2005 is considered the bubble peak as the 2005 price was a record 35% ($77k) above the trend line.  It had appeared a correction was virtually complete by January 2009, but a new low in February 2011 made it apparent median price was exhibiting a classic "return to the mean".

As seen in the charts above, median Existing Home Price ($165k) is $2k above our 2011 target of $163k.  More importantly with regards to the economic recovery, annualized unit sales had quickly improved 19% from the January 2009 sub-trough, but then relapsed to a multi-decade low during the general July 2010 pause.  Unit sales have since rebounded 30%.  To add context, the August sales pace of 5.0 million units/yr is far below the 6.49 mu/yr pace in late 2009.  As shown by trajectory in the chart, it is probable new annual highs for Existing Home median price will not be set 'til 2022.  In summary, the USA Existing Home Realty Bubble was $2k (1% over trend & 1.8 P/FI ratio) in August 2011.  And using monthly data, last month's $168k median price was $12k (8%) above the recent 9-yr low in Feb/2011, but is still down $61k (27%) from the all time high of $229k back in June 2007.  At its worst point, home price had crashed 32% to $156k.

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