Housing's Echo Bubble Now Exceeds The 2006-07 Bubble Peak

Tyler Durden's picture

Authored by Charles Hugh-Smith via OfTwoMinds blog,

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden's housing bubble.

A funny thing often occurs after a mania-fueled asset bubble pops: an echo-bubble inflates a few years later, as monetary authorities and all the institutions that depend on rising asset valuations go all-in to reflate the crushed asset class.

Take a quick look at the Case-Shiller Home Price Index charts for San Francisco, Seattle and Portland, OR. Each now exceeds its previous Housing Bubble #1 peak:

Is an asset bubble merely in the eye of the beholder? This is what the multitudes of monetary authorities (central banks, realty industry analysts, etc.) are claiming: there's no bubble here, just a "normal market" in action.

This self-serving justification--a bubble isn't a bubble because we need soaring asset prices--ignores the tell-tale characteristics of bubbles. Even a cursory glance at these charts reveals various characteristics of bubbles: a steep, sustained lift-off, a defined peak, a sharp decline that retraces much or all of the bubble's rise, and a symmetrical duration of the time needed to inflate and deflate the bubble extremes.

It seems housing bubbles take about 5 to 6 years to reach their bubble peaks, and about half that time to retrace much or all of the gains.

Bubbles have a habit of overshooting on the downside when they finally burst. The Federal Reserve acted quickly in 2009-10 to re-inflate the housing bubble by lowering interest rates to near-zero and buying over $1 trillion of mortgage-backed securities.

When bubbles are followed by echo-bubbles, the bursting of the second bubble tends to signal the end of the speculative cycle in that asset class. There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough.

Consider the fundamentals of China's remarkable housing bubble. The consensus view is: sure, China's housing prices could fall modestly, but since Chinese households buy homes with cash or large down payments, this decline won't trigger a banking crisis like America's housing bubble did in 2008.

The problem isn't a banking crisis; it's a loss of household wealth, the reversal of the wealth effect and the decimation of local government budgets and the construction sector.

China is uniquely dependent on housing and real estate development. This makes it uniquely vulnerable to any slowdown in construction and sales of new housing.

About 15% of China's GDP is housing-related. This is extraordinarily high. In the 2003-08 housing bubble, housing's share of U.S. GDP barely cracked 5%.

Of even greater concern, local governments in China depend on land development sales for roughly 2/3 of their revenues. (These are not fee simple sales of land, but the sale of leasehold rights, as all land in China is owned by the state.)

There is no substitute source of revenue waiting in the wings should land sales and housing development grind to a halt. Local governments will lose a majority of their operating revenues, and there is no other source they can tap to replace this lost revenue.

Since China authorized private ownership of housing in the late 1990s, homeowners in China have only experienced rising prices and thus rising household wealth. The end of that "rising tide raises all ships" gravy train will dramatically alter China's household wealth and local government income.

If you need some evidence that the echo-bubble in housing is global, take a look at this chart of Sweden's housing bubble. Oops, did I say bubble? I meant "normal market in action."

Who is prepared for the inevitable bursting of the echo bubble in housing? Certainly not those who cling to the fantasy that there is no bubble in housing.

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Giant Meteor's picture

"Is an asset bubble merely in the eye of the beholder?"

Yes ...

Bay of Pigs's picture

What? Nothing on Vancouver and Toronto?

Paging ZH real estate expert pitz...

Rainman's picture

But wait .. all these trillions in worldwide fiat currency created from nothing whatsoever has to go somewhere !!! There are only so many stawks !!

zzzz88's picture

this is a misunderstanding.

most of the MONEY >90%, is just credit and debit. once bubble bursts, they both disappear with fortune. got it?

HooRAY4rSIDE's picture

so basically you're saying that a small handful of jews are gonna get rich and the rest of humanity is gonna get screwed, right?

new game's picture

blackrock comes to mind, they unloading yet?

Giant Meteor's picture

Sounds bad when you put it that way ...

zzzz88's picture

i really do not know who will benefit, who will suffer. this is just how money system works

neidermeyer's picture

90% is PFM (pure f'ing magic) but the real money is the first to evaporate leaving all destitute.

Kurpak's picture

Buy now or be priced out forever... the sequel

JoeTurner's picture

What will prick the housing bubble this time ?

zzzz88's picture

1. recession. no more fresh money in this game

2. geopolitic event---war or 911

3.natural disaster, like san fan earquake led the big recession years ago


1 is more likely, i think

Giant Meteor's picture

"What will prick the housing bubble this time ?"

Cataplllar rising, steel crashing, or war with Canada ..



peopledontwanttruth's picture

Funny or sad thing is on a person's deed it says you're a tenant. Welcome to the Grand Illusion.

Ben A Drill's picture

Is it possible that the housing market goes sideways for many years without a crash?

peopledontwanttruth's picture

Not anymore than a NASCAR going sideways out of the third turn and expecting to finish the last 192 laps without crashing

zzzz88's picture

suppose you are one of the big boys with lots of houses and loans from bank, when you see the house price goes sideways for years, you will unload them or keep them?

LyLo's picture

Maybe, but it would take quite a bit of foreign money or looser lending standards.  Just one problem with that, if you can guess...

In my area, rental prices are falling.  Fast, at this point.  Last year, it was near impossible to get an apartment for under $800 a month outside of the ghetto, and honestly the ghetto was priced about the same but with no credit checks (yay, HUD).  Now, I have a friend looking to move into a nice neighborhood, even more convenient than where I am, and just redecorated for well under $700.  A decent house down the road is being rented for $800.

So, if it's going to go sideways, it's probably going to have to do so soon as rental prices are not boding well.

EveningInAmerica's picture

The Fed will buy mortgages to prop up the market, just like last time. The carnage will be swift, and short lived, but another buying opportunity nonetheless. At this point there really is no reason to think it will play out otherwise. Don't fight the fed. Buy stocks, buy as much house as you're approved to buy, and ride that big beatiful wave sweetheart.

peopledontwanttruth's picture

They've lost all credibility worldwide. I'm not expecting a round 2. Linda Green has been retired

AC_Doctor's picture

Dumbest fucking response heard on Zerohedge in a long time.  Can I quote you?  Yes, I gave you a -1 fucknut...

EveningInAmerica's picture

Can we learn about sarcasm, or do I have to do the stupid /s thing every time to spoon feed it to you?

EveningInAmerica's picture

You guys don't do sarcasm well. Jesus. I suppose there are only six of you morons who downvoted me, so that's comforting.

dondonsurvelo's picture

As someone that made big money selling my real estate in 2005, I can tell you that yes some locales are in a bubble but nothing like the bubble nationwide of 2006.  I did not get back to real estate until 2010, and the properties I have bought have increased in price but are nowhere near the 2006 bubble heights.  One property was assessed at $1.2 million in 2007 and I bought it for $640,000 in 2010.  I could sell it now for about $810,000.  Another property was assessed at $480,000 in 2007, I bought it at $180,000 and it I could sell it now for $280,000. 

Both of these properties have increased in value but are nowhere near the bubble prices.  As for the locations, one is on Maui, the other is in Central Phoenix. 

peopledontwanttruth's picture

As the song says
Whooa take the money and run!

Like your hair is on fire. I professionally speaking don't think you'll ever get this opportunity again.

"Hell is coming to breakfast"

Your Good Friend's picture


Current prices are far far inflated higher than previous fraud level prices.


I doubt you could find a buyer for your run down shanties for even half the amount you have in them.

wcvarones's picture

High-end houses have passed the prior peak by a lot.  The lower end is still below peak.  SF, Portland, and Seattle are premium cities.  Las Vegas and Phoenix have not come close to the prior peak.  In San Diego, the overall Case-Shiller is not back to peak, but the high-end areas are way beyond the prior peak.

CJgipper's picture

yes, it's very spotty.  it's nothing like the universal overpricing of last time.

Your Good Friend's picture

Prices are falling in all those places.



ThrowAwayYourTV's picture

Up here around the lakes in New Hampshire they have been clearing vast tracts of land and building 300- 500K house subdivisions all around the lakes. The house all seem to be selling, to who I don't know. Mostly out of staters is my bet because there just arent enough places for everyone to work up here let alone afford a 400K house.

Breaks my heart to see all these beautiful places destroyed and I never go out on the lakes anymore. What used to be a quiet peaceful place is now a noisy crowded shit hole. Glad I got to enjoy it when and how it was but the New Hampshire that I loved has quickly slipped away to gready developer assholes.


Giant Meteor's picture

Welcome to the show ..

Sad, I know ..

Hyjinx's picture

Yup, Massholes be movin' in.

wcvarones's picture

"There is no fundamental reason why housing could not round-trip to levels below the 2011 post-bubble #1 trough."

No fundamental reason, maybe, but a central planning reason: the Fed won't allow it.

jamesmmu's picture
A Look In To The London’s Housing Market; Is The Biggest Annual Decline In Almost Eight Years Pointing Towards A House Price Crash In London


Déjà view's picture

Black Mold...free in flood prone Houston...

Out Of Sight...Out Of Mind...

The price tag for a full replacement ranges between $6,000 and $10,000. It is a rather large cost to pay for homeowners with older homes, but it will provide peace of mind moving forward.



Si Señor!

CultiVader's picture

First off, we don't want to buy a house now. But rents in the area are climbing and a family home rent exceeds a lot of mortgages around here. We qualify for a fucking town home here. We decided to leave the Bay and move to MedfordGrants Pass area where we have family already entrenched.

We make low 100k combined, which normally puts us smack in the middle class. We've been approved for 300k which is more than enough for 3/2, 1600ft starter. The homes we've viewed which meet our needs run 220-250k. Leaving, no matter what, in July. Fingers crossed and all that. We have no choice left but to leave because the bubble in the Bay is that bad. My rent for a 4/3 2700ft here is 3200/mo

Fuck you California.

Your Good Friend's picture

Well not really.... Not at all. 

Rental rates are half the cost of buying at current grossly inflated asking prices of resale housing.

Hyjinx's picture

$3200 for 4/3 2700ft in the Bay area and you're complaining?!  Sounds like a pretty good landlord, bet he can't wait for you to leave so he can get about $4500.

Anderson Coopers Gerbil's picture

Shacks are going for 1 million min in Toronto it,s nuts Ontario is in worst shape than Cali as far as debt goes

Gorgeous's picture

"..the tell-tale characteristics of bubbles. Even a cursory glance...reveals various characteristics of bubbles: a steep, sustained lift-off, a defined peak, a sharp decline that retraces much or all of the bubble's rise, and a symmetrical duration of the time needed to inflate and deflate the bubble extremes."

Wait, the tell-tale characteristic of a bubble is that it is generally filled with a lighter-than-air mixture, round, with convex sides of a generally constant radius, with a little tie-thing on the bottom.

Damn, if I wanted to draw colored lines on a time chart and it a bubble, this would be a good article.  How about plotting housing prices vs some meaningful statistics.  Like wage increase for jobs paying 50-100k, houshold debt, new professional jobs in area, boomers moving into/out of area, white collar retirement in area, foreign investment, percent of houses sold are second homes/rentals, net home equity holding/family, duration of prime rate under X.   I seriously would like to know.

YHWH is greater's picture

Glad we sold in Fremont in February, before the H1B visa restriction...

Blankfuck's picture

I just want to congratulate the FEDERAL RESERVE FUCKERS for bailing themselves out (aka banksters)and ruining most people who can barely afford rental housing or a mortgage. But the people that have the money in this land of the so called "free", have those under them as  slaves, making all the payments paying thier mortgages so these "higher ups" live on the top off thier backs. Right Ponzi fuckers?


artichoke's picture

If the price goes high and stays there, and after falling comes right back up, we shouldn't call the higher valuation a bubble.  We could call the lower valuation a pothole.

Your Good Friend's picture

"We could call the lower valuation a pothole."


We could rightfully call your head an empty skull.