Category Archives: Property prices

20/11/17: Wait till rates normalization hits the property markets

In the context of the ongoing Chinese debt bubble crisis (yet to explode into a full crisis, but the timer is ticking ominously), the ZeroHedge presented the following chart:

The dire state of the global economy post-QE waves of 2008-2017 is reflected in the vast asset bubbles building up across the main markets, with Canada, China, Australia leading the surge, while the U.S. residential property prices are now also at historical peak (previous peak reading was at 184.62 against current at 195.05):


New Zealand is not far off from its neighbour, Australia:


In short, things are getting beyond the pre-2007 bubble levels and the risks of a blowout in global property markets are rising. All we need is a catalyst for breach, which is likely to be either a ramp up in credit costs in the advanced economies or a tightening of credit in China, or both.

5/10/11: The Swedish Crises of 1910s & 1990s: The Lessons Never Learned

Here is an interesting piece of evidence on the nature of real estate bubbles and financial crises these create. One of the largest fallouts from property-driven financial crises in modern European history relates to the early 1991-1992 blowout in Sweden that saw massive collapse in property prices triggering a systemic contagion to financial institutions, The resolution process and the recovery that followed were long. Just about 10 years - the time it took the real property prices to regain their pre-crisis peak.

Source: Zerohedge

But the bigger story is a hundred-years-long bust to recovery cycle that took Stockholm's property prices from 1910 peak until 2007.

What is, however, most telling is the fact that Stockholm's markets show conclusively and without any doubt that all the lessons supposedly 'learned' in the past crises have been un-learned in the aftermath of the 2007-2008 Global Financial Bust. Despite the painful recovery from the 1991-1992, and despite huge efforts put by the successive Governments into highlighting regulatory and market structure reforms that followed it, Swedish property markets have gone into another, this time completely unprecedented in the country history, craze. 

Stockholm is a city that has been so reformed post the 1990s, it makes more sense to live in a hotel, at least in some cases ( It is, of course, worth remembering that Stockholm is the equivalent of 'warm dream' for all rent control enthusiasts worldwide and for all 'moar regulation will save us from ourselves' crowds.

8/12/15: Irish Rents: A Longer Term View

Much has been written about the plight of renters in Ireland. Much of it is correct - there have been some atrocious rises in rents, primarily private rents, in recent years. Year on year, in the last 3 months (though October 2015), private rents rose 10.35% against local authority rents falling 1.11% and mortgage interest declining 8.88%. A year ago - over 3mo through October 2014, private rents inflation was running at 8.95% against local authorities rents rising 1.06% and mortgage interest falling 10.26%.

Which makes for a depressing reading for the renters. Actual rents paid by tenants were up 8.83% in 3mo period through October 2015 and they rose 7.93% y/y in the 3mo period through October 2014. So inflation rate in rents is going up.

However, rents inflation has to be taken over the longer period of time. And here, things are not as clear cut as in the short run. Comparable CSO data goes only back to January 2003. So we have no reliable benchmark for earlier periods, albeit some bootstrapped comparatives are possible. As the result, let’s consider 1Q 2003 as the starting point for inflation - with a host of caveats attached.

Setting 1Q 2003 average level of price indices at 100, inflation in overall Housing, water, electricity, gas and other fuels category that includes rents, mortgages and other housing costs stood at 55.94% in October 2015. Actual rentals paid by tenants over the same period of time were up 26.93%. Private rents rose over 1Q 2003 to October 2015 by 18.62% while local authority rents rose 73.36% and mortgages rose 24.33%.

In other words, cumulated inflation since 1Q 2003 was higher in Local authority rents and mortgage interest than in private rents. Chart below illustrates:

Pretty much the same picture emerges if we take the entire 2003 average (not just 1Q 2003) as a benchmark. In fact, compared to 2003 levels, mortgage interest inflation is just above actual rents paid and is still higher than private rents inflation.

Setting levels aside, let’s take a look at inflation rates (y/y changes in indices). Historical average y/y inflation in Housing, Water, Electricity, Gas & Other fuels category is 4.50% against historical mortgages interest costs inflation of 5.29%, historical private rents inflation of 1.56%, historical local authorities rents inflation of 4.56% and historical inflation in actual rentals paid by tenants of 2.00%.

Once again, timing is everything: given low level of transactions in the purchasing markets for property over the current crisis, majority of mortgage payees today have lived through the period of pre-crisis spike in mortgage costs. Their current savings (reduced cost of mortgages interest) are simply lagged off-sets to this high cost reality of the past. On the other hand, renters faced far lower volatility in rents than mortgagees in mortgage interest. Their current pain is a delayed cost uplift on past moderation in inflation.

Which is, of course, not to say there is less pain because of this or that Irish rental markets are somehow functioning well in terms of pricing. Just to point out that timing of comparatives is important and that one should be careful pitching the (real) pain of Irish renters against the allegedly easy-times for other participants in the markets.

15/5/15: Monetary Titanic & Bubbles Troubles

Food for thought this morning - two links:

Note, first link above cites low worker productivity. Here's a slide from my recent (this week) presentation on same: 

And here is my view on the Irish property bubble (in development, but not yet fully manifested):

What is interesting about the Irish property markets is that whilst price and activity levels are not yet at concern points, the rates of increases in commercial rents and declines in yields, and rates of rises in residential property prices in Dublin are clearly fuelling a massive hype by real estate agents and the media. This is hardly consistent with a 'healthy' market.

I will be speaking about the financial valuations bubbles, focusing on M&As and strategy for avoiding these, next week at so stay tuned for slides on that next week.