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The Housing Bubble Is Biggest In These Cities
Two convergent themes we’ve been keen on documenting this year are stagnant wage growth and the soaring cost of living.
Needless to say, when housing prices rise inexorably but incomes remain stuck in the mud, the strain on everyday people can become overwhelming as illustrated rather poignantly in “Million Dollar Shack”, a documentary which lays bare California’s housing bubble.
But Silicon Valley isn’t the only place where even the upper middle class are being priced out of the market.
Prices are soaring across the US with the cost per square foot in Manhattan hitting an all-time high in Q3. Similarly, ZIRP and NIRP have driven the housing market into the stratosphere in places like Denmark, Sweden, and Norway. Meanwhile, in China, the massive amount of capital flowing out of the country (courtesy of “Mr. Chen” and his Snickers bars) is still finding its way into already overpriced overseas real estate despite Xi's best efforts to crack down on illicit transfers.
It’s against this backdrop that we bring you the following from Bloomberg and UBS who note that when it comes to housing bubbles, London and Hong Kong are right up there with the "best" of them. Here’s more:
London and Hong Kong are the cities most at risk of a housing bubble as real estate begins to look overvalued, according to UBS Group AG.
The U.K. capital is now the second-least affordable of the 15 urban centers studied by UBS, trailing only Hong Kong, the report said. Price-to-income and price-to-rent values have surged to all-time highs even as real earnings have fallen 7 percent in London since 2007, UBS said.
London risks a “substantial price correction should the fundamentals for estate investment deteriorate,” the report said. “We advise caution.”
Just as PE is minting new landlords in the US, the market in London is being driven by the allure of capitalizing on rising rents:
London house prices have surged 40 percent since the beginning of 2013 because of demand from overseas buyers, attractive rental yields and population growth, the Swiss bank’s global real estate bubble index shows. The Bank of England has asked for more powers to regulate lending to so-called buy-to-let investors, who are attracted by rental yields of more than 5 percent compared with 1.8 percent for benchmark U.K. government bonds.
Here's a bit more color from The Guardian:
Price increases of 40% since the start of 2013 have more than offset losses during the financial crisis and mean that homes in London now cost more than ever before. On Wednesday, the Land Registry said the average price had almost hit the £500,000 mark, with the annual rate of inflation running at 9.6%.
Meanwhile, wage growth has been sluggish, and the price increases have made London one of the most expensive cities in the world based on price-to-income and price-to-rent ratios, the UBS report said.
“It takes a skilled service-sector worker approximately 14 years of average earnings to be able to buy a 60 sq m dwelling; the expense of buying a flat is comparable to renting it for 30 years,” it said.
And here's unequivocal validation of everything we've been saying for years (from UBS' Claudio Saputelli and Matthias Holzhey):
"House prices have decoupled most from local incomes in Hong Kong, London, Paris, Singapore, New York and Tokyo. Buying a 60-square-meter apartment exceeds the budget of most people who work even in the highly-skilled service sector. Loose monetary policy has prevented a normalization of housing markets and encouraged local bubble risks to grow"
In other words, far from promoting a beneficial trickle-down "wealth effect," ZIRP has i) failed to lift household incomes, and ii) precipitated another housing bubble that is now so large and ubiquitous that even the well-off are priced out.
But don't worry Londoners, you can still get a bed under the stairs for £500 a month...
* * *
While it is painfully obvious that London property prices (and now rents) are in an atmospheric bubble, it appears the policy-makers choose to ignore the reality for the average Brit in favor of 'wealth' creation for the few.
As @Alex_Lomax tweets... "I have literally just been shown a bed under the stairs for £500 a month... F You London!"
The ad was posted on site London2let and reads:
One single furnished room available.
We are looking for a friendly, open-minded and outgoing person to join our houseshare in a great period house in Clapham.
We're a good bunch and like to chill out a lot together - not really looking for somebody that just wants to stay in their room. Room comes with a bed.
Bills to be shared - approx £60 per month each. Easy access to local tube stations.
As Alex explains, the room lacked any utilities, but did come with a carton of Daz on the floor and coats hanging from hooks.
I didn't even stay long enough to check if there was a mattress, and the landlord seemed absolutely serious.
I asked him if he was joking and he seemed shocked I'd even asked.
I took the pics secretly when he was making himself a cup of coffee, the cupboard was right next to the kitchen.
I expected a normal single room, definitely not this. I left as quickly as I could.
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The house prices may exceed peoples budgets, but do they exceed the amount banks are willing to loan those people anyway?
Oh Well, the banks loan out the money at 3%, sell the debt with a 20% markup on all future revenue from that debt.
Then they take that money and, no they don't buy bonds with it, they play the spreads between bonds and for the last few years, they made about 15 to 20% per year on that.
And all they have to do is tell central banks that they will receive more free money at 0,25%
They sold the risk and make a shitload just by letting people sign a few papers.
I'm sure I'm missing a few more scams between the transactions but that's the big picture.
And that's also why a minute problem can create a entire house of cards implosion in a week.
It takes a skilled service-sector worker approximately 14 years of average earnings to be able to buy a 60 sq m dwelling; the expense of buying a flat is comparable to renting it for 30 years,” ...
The really skilled service-sector worker simply buys that 60 sq m dwelling for nothing down, never makes a payment, and lives there for ten years free.
There can't be a housing bubble in D.C. becasue gubmint pay will always continue to skyrocket along with housing prices. Gots to keep those IRS ObamaCare enforcers well paid...
More shocking then these bubbles, is the fact that the Calgary Real Estate Board declared a 0.20% decrease in home prices earlier this year, a "buyer's market". This is a city where a tiny new starter home costs $430,000, as seen here (just how the architects of Agenda 21 wanted it to be).
The real estate industry has propaganda on blast.
GC: House? You were lucky to have a HOUSE! We used to live in one room, all hundred and twenty-six of us, no furniture. Half the floor was missing; we were all huddled together in one corner for fear of FALLING!
TG: You were lucky to have a ROOM! *We* used to have to live in a corridor!
MP: Ohhhh we used to DREAM of livin' in a corridor! Woulda' been a palace to us. We used to live in an old water tank on a rubbish tip. We got woken up every morning by having a load of rotting fish dumped all over us! House!? Hmph.
EI: Well when I say "house" it was only a hole in the ground covered by a piece of tarpolin, but it was a house to US.
GC: We were evicted from *our* hole in the ground; we had to go and live in a lake!
TG: You were lucky to have a LAKE! There were a hundred and sixty of us living in a small shoebox in the middle of the road.
MP: Cardboard box?
TG: Aye.
MP: You were lucky. We lived for three months in a brown paper bag in a septic tank. We used to have to get up at six o'clock in the morning, clean the bag, eat a crust of stale bread, go to work down mill for fourteen hours a day week in-week out. When we got home, out Dad would thrash us to sleep with his belt!
GC: Luxury. We used to have to get out of the lake at three o'clock in the morning, clean the lake, eat a handful of hot gravel, go to work at the mill every day for tuppence a month, come home, and Dad would beat us around the head and neck with a broken bottle, if we were LUCKY!
TG: Well we had it tough. We used to have to get up out of the shoebox at twelve o'clock at night, and LICK the road clean with our tongues. We had half a handful of freezing cold gravel, worked twenty-four hours a day at the mill for fourpence every six years, and when we got home, our Dad would slice us in two with a bread knife.
EI: Right. I had to get up in the morning at ten o'clock at night, half an hour before I went to bed, (pause for laughter), eat a lump of cold poison, work twenty-nine hours a day down mill, and pay mill owner for permission to come to work, and when we got home, our Dad would kill us, and dance about on our graves singing "Hallelujah."
MP: But you try and tell the young people today that... and they won't believe ya'.
Had to log in to thumbs up. LOL'd hard
What's this from?
Monty Python.
With an imagination like yours the sky is the limit.
'Please sir, may I have some more gruel...'
Listen, fella - how can you have any pudding if you won't eat your meat?
Do ya think they'll drop the bomb?
They voted for it (or didn't vote against it) so they should enjoy it...
I once had a house or should I say it once had me....
Your wife kicked you out he?
Well hell, man - who wants to live in New York Shitty anyway. The benefits of living near 15 sushi places isn't all its cracked up to be. Seattle, even Atlanta and surely San Diego are much nicer places to be.
Depends on your priorities, I'm sure.
fwiw I'd love to see more stuff on housing in regional/city terms. Not all bubbles are equal and so forth...
This looks also like the list of Money Laundering target locations.
YOU DO NOT want to be in atlanta when the EBT cards stop working. Glad I have a gun.
Harry Potter had no qualms about living under some stairs, you think you're better than him, Alex?
Party like it's 1999.
Y2K BRAH !! Y2K !!
Houses in NY fair value?
lol
They more than doubled from 2005.
350,000 shit houses that need to be completely gutted are selling for 900-1.5M
Chinese people bought the house down the block, there is already a mountain of construction debris outside on the front lawn , it sold for 2.1 and they didn't keep a single thing from inside, the entire house was gutted, the same house was worth 700,000$ in 2008.
If a 100-150% increase in price over less than 10 years is not a bubble.... what is?
Its not like the house got bigger.
Its not like the house got better.
Its not like the land has oil under it.
The only thing propping up home prices are Chinese investors, when the investors dry up the bubble will pop.
Don't forget the Russians
Anyone want to trade down to a nice 1Br in queens?
Where in the world are Chinese hiding for $400, Alex!
http://www.dailymail.co.uk/news/article-2275206/Hong-Kongs-metal-cage-ho...
Ti Ni Li Ving
Just say no to debt and servitude...
Whenever I say that, someone *always* tells me that I cannot possibly understand the plight of someone who is just starting out, today. Truth is, I know exactly what people face. Unfortunately, what I've discovered is that people enable their own oppression by ruling out unpopular solutions, e.g., not going into debt for a college degree (Horrors: what kind of person opposes a good education?)
Everyone cannot get rich doing the same thing: Follow the crowd and you will lose. Question authority and push back or the people in power will take everything you have including your freedom and your heritage. You get what tolerate.
Sometimes it is not about the money...
Your post borders on ignorance. Young people are really in a crack. When I got out of college my choice was a number of jobs, not true today. My buddy is a framer and he was up to $52 - $56 hour building custom home in Lake Tahoe. He was down to $26/hr and then took a new job at an hourly so low he won't tell me what it was - they were building like a 20,000 SF house or sumtin. So you can go to college and get an edcuation, or become a carpenter or plumber and compete against Central American works who work really hard for long hours at lower wages. My children both have masters degrees and daughter is in law Skool in Europe. Simple solutions like yours overlook low barrier to entry skills will be flooded with applicants.
I agree that tuition costs are retarded and why there are not more on-line Universities is beyond me.
I thought this was a nice read (of a terrible situation)
Software Engineer lives in a van
"Even if I was to spend the huge majority of my salary on rent, I knew I would likely still be in a grim living situation, resenting every penny I handed over that could have gone towards paying back my student loans. And as a software engineer, I’m one of the lucky ones! Imagine those who aren’t lucky enough to be on the tech payroll."
I graduated from college in 1974. The stock market was crashing, real estate was crashing and the cost of living was skyrocketing. I paid my way through college working in a grocery store almost full time. I lost that job after five years, along with practically everyone else in the store, because a new manager decided to cut labor costs and hire new people for less money. I sold my car and bought a used motorcycle to cover rent while I studied for final exams. When I graduated, I needed to save some money because I wanted to move and go to graduate school. I walked onto a construction site and offered myself at a day labor rate, $1.60/hr. They put me in a trench about six feet deep with a shovel and another guy. This was summer, in the south, in the sun. We talked a bit while we worked and I told him my story. He said,"You went to college?" I nodded "Then, what are you doing in this ditch with me?" He apparently could not grasp that the need to eat is universal. And, that was very far above the low point of my existence which was still ahead of me. At one point, later, I'd find myself starving.
London very dependent on the amount of Jet Kerosene flowing into it.
The Dublin London airlink is one of the busiest short haul routes in the world, Irish austerity / rationing very effective in transferring energy back into this element of the consumer war economy.
But Irish transport inputs now exceed 40% of totalTfc again, last seen in 2005-07......
Dork of Cork
So are young well educated Irish going to lOndon for work? Lots of French are in London - France has a crappy job market according to inlaws.
No that happened in the late 80s for the most part.
The Irish birth numbers therefore collapsed, reaching a low in 1994 before international migration began in the late 90s.
Therefore there is very few (real) Irish in their early 20s
The Dublin / London airlink is part of a international wage slave network today.
Welcome back. Have not seen you post in a while. Have glitz of family over in London and am reluctant to urge caution. The stories are fabulous at present but seem way way too good to last
It's retarded to compare real (inflation adjusted) income with nominal (not inflation adjusted) rents, you pay rent with nominal dollars, not inflation-adjusted dollars. As a simple example, assume inflation is 5%, nominal income increases 3%, and rent increases 2%. Then real income is about -2%, sloping downwards, and rent shows an upward slope, just like the above graphs. And yet the rents are about 1% more affordable, it would be other costs like medical care for example that contribute to the reduction in standard of living.
It's possible the point of the first 2 graphs is still valid, but you need to do more work to verify.
My city of Amsterdam comes in 6th in the bubbly index but this morning the newspapers wrote "the Amsterdam real estate market is finally on the path to recovery".
Hope we 'recover' as well as London and Hong Kong!
I see those blanket rolls in closets all the time in LA. London is super expensive
Ok, Buy NY real Estate. It is under bubbled
Coming soon, to a neighborhood near you...
The night time 'McRefugees' of Hong Kong
http://www.bbc.com/news/world-asia-china-34546807
Those are the Chinese "vibrants?"
Soon they will not be open 24/7 anymore. Speaking of homeless, I read the LA numbers are in and they're reached a new, robust, green shoots high of over 7,000!
The "Yes we can" recovery seems to be gaining momentum!
Well, if you were in China - where would you buy. NYC, LA, SF, London are supply constrained desirable locales. Plus you get a currency hedge to boot. Look for more capital controls in China -
BTW, seen deals in LA with Hong Kong money - buyers buying properties sight unseen - maybe pix on Loopnet or Costar?
Chicago is a bargain?
Yep - AND, each house comes with a free bullet in the ass!
They media hyping this bubble all the way. In the 90's we had garden programs followed by every real estate action possible . Flipping ,buy , dicky up and re sell etc, now it's a few competing straight gay and transgender agents competing to sell a one bed for $ 33 million in Manhattan ,. Rent the space you need , where you nerds it when you need it to suit your present needs and SAVE
The value TODAY is irrelevant provided you borrow to buy a house (which 99% people do). With mortgage rates this low .. the true cost of your house (what you'll pay the bank over the next 30 years) is at historical lows.
https://contrarianstraighttalker.wordpress.com/2015/10/18/why-are-house-...
I totally disagree. The net effect of low interest rates has been housing and equity prices going through the roof. And once the interest rate would go up again the opposite occurs : housing and equity prices tumble, interest payments soar and the people who bought at low interest rates get stuck with a very high principal still to be paid for a house which devalues by the day and a loan interest burden they hardly can handle. Same holds for margin calls. Those low interest rates are actually THE trick to hide inflation - your savings ( money on the bank ) have become worthless : no interest plus hidden inflation ( since all long term assets only get more expensive - like houses or equity ).
Larry Yun is that you? Additionally, property taxes, mortgages fees and realtor fees are a percentage of house price and as explained above, those historically low interest rates have pushed home prices into the stratosphere (gotta keep the price high for the banks' and Fed's balance sheets), increasing those fees and taxes to all time highs.
I much rather buy a house with a smaller price tag and higher interest rate. It would be much easier to pay off the principal earlier and the asscociated taxes and fees would be less. Anf when housing bubble 2.0 pops, I would lose less money.
Gotta put all of that funny money floating around London into something! Welcome to the Pit!
Sydney/Melbourne puzzle me. The RBA is the last developed country with positive rates (2%), leaving massive scope for futher devaluation to stimulate the stimulate the economy and prop the real estate market BUT what does devaluation do to Chinese already invested in Aus apartments and farm land;
Do they panic and sell, OR buy more while its on sale?
Chinese want out of China . My guess is they will find other ways to get their money out and over. It's related to returns but also related to moving to a democratic countries. Many wealthy Chinese loath communism.
How on earth did Auckland New Zealand which is near the top of the list not appear on the list?
Seriously, WTF???
New Zealand has a smaller population than Melbourne or Sydney; it only seems to include alpha global cities.
Fair enough but 1.4 million people in a city is nothing to sneeze at.
It amazes me how the rich Chinese want to do nothing with China and get the hell out. . China's model and political environment is having real effects elsewhere.
I frankly feel sorry for regular folks who are being asked essentially to leave these cities or pay their entire wage to a bank. Disgusting. A lot of winners right now but a lot of losers to be left holding the short end also.
Capitalism has its good sides and it very dark side.
Detroit didn't make the list?
I laughed out loud at this.
Good one.
Squid
Australia could only manage a third place, I'm disgusted. But we are only 8% away from a mortgage debt to GDP of 100%, Ireland or the US never got close! aussie aussie aussie, oi oi oi!
No shit! Where's Melbourne not as fucked up as Sydney but still mighty fucked up!
Here are some signs of a coming recession.
1. Business loans for M&A not CAPEX.
http://www.zerohedge.com/news/2015-10-15/there-goes-final-pillar-us-recovery-loan-growth-paradox-explained
2. Factory orders continue to drop
http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row
3. Default risk spikes
http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high
4. M&A set record
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/
5. Fed sees 2 bubbles
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
Here is how to prepare.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
That link gives you the 8 steps a flipping moron in the ghetto knows.
Where did you get your financial acumen? Playing marbles with the other kiddies on the 5th grade lunch break?
China buying and moving prices up up up - except of course in China where no millionaire Chinese want to live. Gotta worry the establishment over there that the moment your rich you want to get the hell out.
I don't think they had that on their economic business plan. Oops, sucks being a communist government, don't it?