This analysis has been creating quite a stir in the past year and was featured in the popular ZeroHedge blog, Business Insider, and in the Keiser Report (starts at 1:40):
Could Sweden or Finland be the scene of the next European financial crisis? It is actually far likelier than most people realize. While the world has been laser-focused on the woes of the heavily-indebted PIIGS nations for the last couple of years, property markets in Northern and Western European countries have been bubbling up to dizzying new heights in a repeat performance of the very property bubbles that caused the global financial crisis in the first place. Nordic and Western European
countries such as Norway and Switzerland have attracted strong investment inflows due to their perceived economic safe-haven statuses, serving to further inflate these countries’ preexisting property bubbles that had expanded from the mid-1990s until 2008. With their overheated economies and ballooning property bubbles, today’s safe-haven European countries may very well be tomorrow’s Greeces and Italys.
I’ve named this massive multi-country housing bubble “The Post-2009 Northern and Western European Housing Bubble.”
(The Post-2009 Northern and Western European Housing Bubble is a part of the overall Post-2009 Global Housing Bubble or “Housing Bubble 2.0″ that I’ve identified. )
Chart Source: GlobalPropertyGuide.com
Like Paris, the city of London has such a strong level of international “brand recognition” and a perceived safe-haven status that wealthy foreign investors are clamoring to buy property in prime areas such as central London. “London property is the ‘Swiss bank account’ of the 21st century,” says Robin Hardy, an analyst at London investment firm Peel Hunt. Rich people in places like Egypt, Syria and southern Europe are rushing to get their money away from the turmoil, and for want of a better alternative, they are plunking it down in the “millionaire’s playground” of central London. [4] The nouveau riche of China, India and other emerging markets are also keen on diversifying their wealth into prime Western property markets such as London, Vancouver and Manhattan, while one hedge-fund manager said that London property was a “laundromat for Russian money.” An entire generation is locked out of the city’s broken and outrageously-bubbled housing markets as the average Londoner would need to triple their salary to £87,000 to buy an average price property. [5] The prime London property bubble is highly vulnerable to the popping of the precariously-teetering China and emerging markets bubbles as well as job losses and decreasing bonuses for City of London financial workers. [6]
UK and London Housing Bubble Articles List
Chart Source: Bulle-Immobiliere.org
property prices, causing fixed-rate mortgage lending to increase by 73% by early 2011. [3]
The French property market now has the dubious distinction of being the most overvalued in Europe and the third most overvalued market in the world, behind only Hong Kong and Australia [4], which have property bubbles of their own. The Paris-based OECD warned that “there is a risk that a prolonged period of easy finance could result in a price bubble,” which may endanger French banks [5], while Hervé Boulhol, the OECD’s France economist, warned against treating French real estate as a safe-haven and that the property market’s powerful rise without a corresponding rise in income “may signal a bubble phenomenon, as a bubble is a disconnection with fundamentals.” [6] Moody’s also issued a warning that the French property market was overheating and that the least cautious lenders could face steep losses in a more price severe drop. [7] By October 2012, the French property boom showed signs of an abrupt slowdown, with new mortgage loans dropping 45.8% (yoy) and a 30 to 40% decrease in home sales in Paris and Ile-de-France. [8]
French Housing Bubble Articles List
Chart Source: blogs.ft.com
While Germany was fortunate and sensible enough to have avoided engaging in the 2000s housing bubble folly with the rest of the world, Germans certainly seem eager to make up for lost time. The European Central Bank’s ultra-low key interest rate, while appropriate for the ailing PIIGS nations, is too low for faster-growing Germany resulting in negative real interest rates and fears of inflation. As is common in countries with negative real interest rates, German investors are pulling money out of low-yielding bank accounts and investments and plowing it into all types of real estate, causing prices to boom for the first time in a very long while. Property prices in Munich and Hamburg rose by more than 10% in 2011 [1] , while obscure fields and forests in northeastern Germany’s Uckermark region have soared by as much as 20 to 30 percent. [2] In September 2012, George Soros said “You have a serious danger of a housing bubble developing in Berlin. It has a lot to do with the flight of capital and negative real interest rates.” [3] It is too early to determine if Germany is in the midst of a property bubble, but it is certainly a situation that warrants monitoring, especially if there is a temporary improvement in global economic growth and sentiment.
German Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
creating alarmingly similar monetary conditions to those that caused Switzerland’s 1980s property bubble. [2]
In response to rising Swiss real estate prices, UBS launched a Swiss real estate bubble index, which surpassed a two-decade high in the 3rd quarter, officially placing Swiss property in the index’s “risk zone.” [3] Swiss National Bank Chairman Philipp Hildebrand warned that, “A rise in real-estate prices is among the greatest threats to Switzerland’s economy.” [4] Most worrisome is the warning of Janwillem Acket, chief economist for Julius Baer Group Ltd. (BAER), who claims that Switzerland could experience its own version of the subprime borrowing crisis, saying, “People who shouldn’t be borrowing are now seriously considering entering the housing market.” [5]
Swiss Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
Belgian Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
Dutch Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
Luxembourg Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.comAustrian Housing Bubble Articles List
The Nordic Housing Bubble:
Chart Source: GlobalPropertyGuide.com
Danish Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
the reason that the price is high today is only because investors believe that the selling price will be high tomorrow – when ”fundamental” factors do not seem to justify such a price – then a bubble exists.” [3]
The IMF has also warned of a possible Swedish housing bubble, saying “There is significant risk of a decline in house prices in coming years, even in a relatively benign economic scenario,” [4] while the OECD warned that Swedish housing prices are overvalued by about 30 percent in relation to income. [5] Robert Shiller, the economist who successfully predicted the popping of the Dot-com and U.S. housing bubbles, warned investors against treating Sweden and Norway’s markets as safe-havens as the Nordic region is caught up in asset bubbles that will end with plunging asset prices. [6] A Danish finance minister has even warned Sweden of the risks of its housing bubble, saying, “Do not make the same mistake as we did in Denmark,” [7] referring to the Danish property bubble that has been deflating since 2008.
Swedish Housing Bubble Articles List
Chart Source: Federal Reserve Bank of San Francisco(Note: Housing prices are inflation-adjusted and indexed to 100 from their 1985 levels)
of the nation’s excessively low interest rates relative to economic growth and inflation rates.
In February 2012, the IMF cut Norway’s growth forecast, saying that the Norwegian housing bubble is the country’s biggest economic risk and threatens everything from banks to economic growth. [4] In June 2012, the U.S. Federal Reserve warned that Norway’s property market was experiencing a bubble. [5] Norway’s booming housing markets and cheap interest rates are encouraging households to engage in a typical bubble-style debt binge as private debt burdens are estimated to grow to about 204 percent of disposable incomes in 2012. [6] A major risk to Norway’s economy (and possible bubble-popping catalyst) that virtually no mainstream commentators have acknowledged is the very real possibility that oil prices might drop and sharply reduce the country’s oil profits and thus economic growth.
Norwegian Housing Bubble Articles List
Chart Source: GlobalPropertyGuide.com
neighbors to the south. The Finnish property bubble is being fueled by a mortgage market in which a jaw-dropping 90% of loans are of the highly dangerous adjustable rate variety, while banks are taking a page straight out of the U.S. housing bubble as they push reverse mortgages on their elderly customers. A Finnish bank advertisement for reverse mortgages even shows a cartoon person taking a vacation paid for with cash withdrawn from an ATM that is attached to their house! [See cartoon] It is as if nobody has learned a thing from the U.S. housing bubble – the saying, “those who don’t learn from history are doomed to repeat it” could not apply to a better scenario than the Finnish housing bubble.
Finnish Housing Bubble Articles List
Iceland’s Housing Bubble
Though Iceland is said to be recovering very well from its financial crisis, there is an inflating housing bubble that is lurking behind the scenes that is helping to lend much-needed strength to the country’s banking system and consumer spending. Iceland’s housing prices rose an incredible 150% from 2001 to 2008 and gently eased 12% during the worst phase of the country’s crisis. A major reason why Iceland’s economy has faired far better than other hard-hit nations is that its property prices have not fallen much, unlike Spain and Ireland, whose property prices have dropped by nearly 30% and 50%, respectively.
In clear defiance of the lessons taught by the Global Financial Crisis, the price of new homes in Iceland have hit a record in the first quarter of 2012, having surged 40.1 percent since the final three months of 2010, according to estimates by the National Registry of Iceland in Reykjavik. Average house prices have risen 11.3 percent since the market bottomed at the end of 2009, according to central bank data at the end of the first quarter. (3) Iceland’s housing prices are rising in tandem with the overall Nordic Housing Bubble and are exacerbated by currency controls that are designed to prevent capital from flowing out of the country until 2015. Nearly 8 billion kronur 
($1.13 billion as of June 28, 2012) is held within Iceland by foreign investors, unable to leave the country, and is flowing (along with domestic capital) straight into Iceland’s property markets. According to Asgeir Jonsson, an economist at Reykjavik-based asset manager Gamma, “If the development continues without interference, this will lead to a property bubble within the next two years” and “There’s a greater risk of an asset bubble being created in an economy that is closed off behind capital controls.” (3) Iceland’s housing market is quite overvalued, with an average apartment selling for 6.36 times the country’s average income, according to Statistics Iceland. Finnur Eiriksson, a computer scientist living in Reykjavik, said, “The exorbitant prices in the housing market, so early after the collapse of the Icelandic economy, are quite shocking.” (3)
Surging housing prices are helping to drive Iceland’s consumer spending higher, which was identified by a team of economists at Arion Bank as the main reason for the country’s economic recovery. (3) Iceland’s economy is slated to grow by 2.6% in 2012, which is even faster than Sweden’s economic growth rate. Car sales doubled in the first quarter of 2012 as Iceland’s consumers rekindled their love affair with shopping again. Jon Olafsson, who owns a car dealership in Reykjavik, expects to sell almost 1,000 cars this year, having sold less than 100 cars in 2009. (4) Of course, in this day and age, surging consumer spending and household debt levels go hand-in-hand and Iceland doesn’t disappoint in this regard as household debt grew to 270% of disposable income in 2010, up from 217% in 2007 and about 50% in the 1980s. (3)
Icelandic Housing Bubble Articles List
Questions? Comments?
Click on the buttons below to discuss or ask me any question about these bubbles on Twitter or Facebook and I will personally respond:
Good summary of the idiocy, arrogance and self serving behaviour of fascist politicians. They don’t even know they’re fascists.
Thank-you
Sadly, with their zero-interest policies, governments have chosen winners (the financially reckless ones) and losers (savers)..
Yes, they have instituted policies of financial repression, while low returns on fixed-income investments have forced people who should normally be relatively risk-averse (older people) into riskier, more volatile assets. These same monetary policies are also re-inflating bubbles throughout the world, aside from the now deflation-prone U.S., peripheral Europe and Japan.
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And add to this the bubble down under, the Australian Housing Bubble ….
Is Australia’s housing bubble bigger than the one in the US?
http://www.debtdeflation.com/blogs/2011/02/10/a-motley-crew-interview-on-australian-house-prices/
Yes, I completely agree and I wrote about the Australian housing bubble here:
http://www.thebubblebubble.com/australia-bubble/
Canada also has a similar bubble economy and housing bubble like Australia:
http://www.thebubblebubble.com/canada-bubble/
Great article.
Here in Hamburg prices have really gotten out of hand with investors paying between 25 to 30 times yearly rent for residential apartments.
In 2010 this used to be 14 times and I considered even that high.
People are really worried about future inflation but at these prices property will most likely not be a hedge.
In the meantime equities in Europe with 7% to 9% dividend yields that are sustainable are being ignored completely.
Thanks Tim! It’s great to hear first-hand anecdotes of these bubbles. Germany has managed to avoid bubbling up with the rest of the world for the last 20 years, but looks like things are changing.
I’m curious to see if Germany’s property market will experience a full-blown bubble if the global economy can avoid an immediate hard landing and stock markets can break out to new post-2008 highs, as the SP500 is on the verge of doing.
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Governments everywhere have gotten addicted to a bubble economy. To the politician fake growth is better than no growth or, God forbid, deflation. The massive leverage merely robs from future growth and assumes our children & grandchildren will clean up our mess. Sad really.
Well said!
We have the extraordinary example of around 200 out of 260 cities in the USA that did not experience bubbling in their property prices – the entire crisis in the USA was caused by 60 out of 260, and disproportionately by Californian cities.
Of course the USA will rebound economically far better than nations that had bubbles in every single city without exception. Notice that 75% of all new employment created in the USA since 2007, has been created in Texas, and Texas did not have a property price bubble. They had an episode of over-building in the 1990′s that kept prices flat, but in-migration quickly filled the empty houses and then some. Texas’ housing SUPPLY keeps pace with demand of just about ANY level.
I think economists should seriously study, for a causative role in this international bubble mania, the directly related mania in urban planning, of “growth constraint”.
This is the best list I know, of academic references relating to the connection between “supply” side distortions in housing markets, and price inflation:
http://www.performanceurbanplanning.org/academics.html
This branch of economic analysis has been ignored by the mainstream, at considerable cost to all of us.
I particularly recommend the two books written by Alan W. Evans in 2004, which SHOULD have been adopted as standard texts on land economics. As Evans himself says in one of these books:
“………few economists have any interest whatsoever in planning. Their whole training leads them to ignore matters related to land and location, so they tend to consider only those factors conventionally considered “economic” – investment, training, labour relations, management, etc…..”
This has contributed mightily to the hubris that you very appropriately describe. One sees almost nil understanding on these issues emanating from the most influential advisers that governments everywhere rely on.
I am very pleased to have discovered this blog. I recommend “The Unconventional Economist” in Australia, too, for excellent analysis of property bubbles all over the world.
http://www.macrobusiness.com.au/category/global-housing/
Great comment. I totally agree that excessive land regulations have exacerbated property bubbles – they don’t allow markets to work the way they should and have resulted in an unnecessarily high cost of living and business overhead in many places around the world.
I will definitely check out the urban planning economics link and, yes, I am a big fan of the economists of MacroBusiness – I communicate with them regularly on Twitter.
Thanks for the input,
Jesse
Appreciate the encouragement, Jesse. Glad you are so up with the play. I am telling everyone I can about this site.By the way, I think you should include this page in your main page’s list along with the CCACHES; it is a pity it is only findable via drop-down menu, and even then it is not visible if the home page has just loaded on a normal size screen. I would also like to make the point re urban planning even stronger now, after reading more analysis by Evans and colleagues, and Cheshire and colleagues – on Britain’s long standing house price volatility; and by Mills and Kim and colleagues, and Malpezzi and colleagues, on South Korea, which has had serious house price volatility since emulating Britain’s urban planning system in the 1970′s. This tends to debunk the idea that “easy credit”, or “loose monetary policy”, or “favourable tax treatment”, or the absence of a capital gains tax, or ‘high immigration levels” or various other red herrings, are the primary culprits for these bubbles. It is urban growth constraint planning that does it, even if NONE of the other factors are present. And urban growth constraint planning has indeed been a new, and growing, international mania in the last 20 years.
Hello Phil,
I highly appreciate all of your support
I am actively growing this site and writing more bubble articles, including articles about historic economic bubbles. You’re 100% right – I will work to integrate my European housing bubble article on the main page.
I do agree with your views on urban constraint planning and how it exacerbates housing bubbles. I can certainly see this in real life where I live on Long Island, New York, where construction is severely limited and prices are still sky-high (average, “nothing special” middle-class homes go for $500,000) even after the bubble burst in 2007. At some point in the future, I’d like to integrate these concepts into my European housing bubble article – if you have any good research material, I’d certainly appreciate if you can send it my way.
Thanks again – I’m looking forward to communicating with you in the future.
Jesse
Fiat currencies, fractional reserve banking, central planning banks controlled by democratic governments result in structurally too low interest rates and excess money and loan creation. Which one way or another ends up pumping up asset values. This is just not rocket science.
As long as the those same governments and the press continue to describe the result as a problem with free markets, rather than the hijacking of free markets, we are far away from the solution.
Yes, that about sums up the problem.
Politics can and do increase house prices. Doing so makes the voters feel wealthier and gets the politicians re-elected. Politicians around the world have been creating bubbles.
This is just one of the causes of these bubbles. There are other ways that housing is manipulated.
Read:
Housing, the most manipulated market in the world
http://www.newworldparty.org/2011/04/housing-most-manipulated-market-in.html
Thanks for visiting – I’ve been to the New World Party website several times before and I really liked what I saw, especially the articles about “stealing from the children” etc.
Keep in touch,
Jesse
All of this is a way for bankers who really run everything to appropriate wealth quickly and get rid of the middle class, welcome to the new USA or global economy for good…haha.
Really interesting particularly for those of us living in Europe.
I note the concerns about gold and safe haven bubbles.
This begs the question “where does the prudent saver/investor put his assets?”.
This is of particular interest to me as my Grandfather lost the family fortune in the great German inflation. He believed money was safer in the banks than in real estate!
My strategy has been influenced by this and hence I have a deep distrust of banks and fiat currency so have always gone for real things. Gold, property etc.
Not certain now where it is possible to be a prudent investor without the use of the retrospector scope.
Please forgive me if I am being naive.
Hello Peter,
I’m not legally allowed to give investment advice but I can tell you what I will do with my own investments.
I do believe in gold and other hard assets’ value in the longer-run but I am concerned that their prices are inflated due to the artificial flurry of economic activity (including demand for gold jewelry) thanks to the bubbles in China and emerging markets. You can read about these bubbles here:
http://www.thebubblebubble.com/china-bubble/
http://www.thebubblebubble.com/emerging-markets-bubble/
There’s a very high chance that a deflationary-type crash like 2008 can happen again when more bubbles pop and this could send commodities reeling. Because of this view, I don’t feel comfortable investing in hard assets right now until this deflationary event occurs.
I do intend to trade hard assets like gold until this aforementioned deflation occurs. Even if the commodities bubble continues to inflate for many more years, I can still profit from it as a trader by trading from the “long” or bullish side. I find that conservative trading allows me to manage my risks better and prevents me from experiencing a 50%+ plunge in my portfolio, which is what happened to many hard asset investors during the worst of the 2008 crisis. Silver dropped 70% in 2008 and gold dropped 30% – I’m not comfortable with that kind of risk during a near-depression.
For non-traders, it’s a very tough situation because I don’t really believe that there is now any single investment that is worth buying and holding through this bubble and crisis because so many “safe-haven” assets have become inflated and risky in their own right as you can see from this article. As much as people hate cash right now, I think it is a safer bet until hard assets deflate somewhat, even if it’s for a short time.
Hope that helps,
Jesse
Thanks for the reply.
Sorry to beg the question but which currency?
I saw my gold go up 25% when King devalued the pound with QE.
I feel safer with gold then euros.
I was wondering about a long term deposit in renminbi.
I am not at all keen on the usd.
As you say a very difficult environment.
I personally believe that gold will rise in the longer run (and probably in the immediate future). My concern is that gold may run-up if the commodities boom gets even bigger and then central banks will try to rein in credit and cause gold to drop very sharply. After that deflationary downdraft, I expect to see competitive currency devaluations ala Jim Rickard’s “Currency Wars” concept.
I expect a strong amount of volatility in gold’s ascent, so I will trade it to minimize my risk and maximize my returns by being nimble. I do believe in gold, I just don’t think that most people should bet the rent money on it – it definitely has a place in today’s portfolio.
They’re not going to make this easy!
Is the tiny little island of Malta also in this property bubble? I have recently bought an apartment there in St Julian and after reading the articles on the bubble in Europe wish to God I had not! Thanks
Hello Charles,
Here’s a chart of Maltese real estate prices:
http://www.globalpropertyguide.com/real-estate-house-prices/M#malta
They look quite elevated if you ask me. There seems to have been a global property bubble that developed since the mid-1990s and, due to globalization, there seems to be few countries that escaped this bubble (except for Japan and Germany, but German property may be developing a bubble at the moment).
My concern is that these bubbles that I write about will pop and create a truly global economic crisis, sparing very few economies or investment markets. This is the downside of the high level of economic interconnectedness that comes with globalization.
Or perhaps there’s another explanation for all these housing ‘bubbles’. E.g. that we’re witnessing a response to the combined impact of aging populations, large retirement savings chasing limited quality ‘assets’ and the predatory-corporate / lazy-fund conduct in an increasingly zero sum game market. I.e. ‘Middle Class’ citizens putting their wealth into residential property becomes safer when a drop of say 30% will take down the nation’s entire financial system (and hence require Central Bank bailouts) or take down the governments themselves. Hence at least some of the price of residential property gets the security equivalent of soverign bonds. I.e. us citizens are trying to bypass the banks to get soverign bond style security.
Smaller net wealth citizens are safer moving in packs with their democratic governments out front at knifepoint than venturing into other markets where we can be picked off one by one. Farmers, doctors and engineers who spend their lives dedicated to mastering their craft for the betterment and security of humanity are no match in the world of money against the zero sum predators who have dedicated their life to the study of finance.
So perhaps what we’re seeing is a repricing of the safety of residential housing. What’s left of all other (non housing) investment assets that hasn’t been able to relocate to China is riskier now because they have become too heavily gamed.
It’s definitely a hypothesis worth considering. What makes me skeptical is that there has been a global housing bubble since the mid-1990s and it’s all driven by a common factor – a glut of cheap credit. Similar housing booms/bubbles are occurring in emerging markets where there is very little of the kind of economic fears that we now have in the West.
I definitely understand the appeal of real estate as a type of hard asset – the problem is that global real estate markets have become so financialized (like nearly everything else) in recent years and supported by an explosion of credit. Because real estate prices are rising along with this bubble of credit, I worry that they are extremely vulnerable to a credit crunch-type event.
I would feel much better about property as an investment if it wasn’t such a debt-based and highly-leveraged market.
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Top post. I look forward to reading much more. Regards
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