Housing Bubble Comparison: US, UK, Canada, Spain, Australia, Japan

The Economist has a fantastic interactive graphic of housing bubbles over time, shown below. It may take a while to load.



I picked that up from Steve Keen who comments:

For Australian readers, house prices today are almost 2.5 times what they were in real terms in 1986; and our price bubble (in CPI-deflated terms) turns out to be smaller than some countries (notably Belgium�s) but larger than the USA�s and UK�s.

The important macroeconomic issue which this data alone doesn�t address is the level of debt that house price inflation has led to. It is probable that a higher real house price reflects a bigger ratio of mortgage and other private debt to GDP, but this isn�t necessarily the case. That ratio is the key indicator of whether a country is going to experience a debt-induced recession.

Move the slider bar on the interactive graphic to change the start year. It makes a huge difference in the shape of the curves. Also note the dropdown box at the top of the chart that allows one to graph...

• House-Price Index
• Prices In Real Terms
• Prices Against Average Income
• %Change

Canada is the surprising country. Here are charts that show what I mean.

House Price Index



Prices vs. Average Income



Those charts makes Canada housing prices look like a bastion of common sense. I assure you that is not the case.

By the way, "average income" is a fatally flawed measure (at least in the US), as income gains are heavily concentrated in the to 10% of earners. It would be interesting to see that chart throwing out the top and bottom 10% of incomes and plotting the remaining 80%.

Addendum:

Jonathan comments ....

Hey Mish,

People have to realize that Canada experienced a huge real estate bubble from 1987-1990. Home prices over doubled. Prices crashed in 1990 and it took a decade for home prices to return in nominal terms to the bubble levels. That's why it's not showing up in these charts.

Having said that the average price of a Canadian home is $330,000 US. That's fairly expensive considering we have the smallest population per square km of any country in the world. Canadian's earn $6,400 US less per person than the United States. Canadians are only 75% as productive as Americans.

The best way to understand the situation is to look at mortgage debt. Canada has grown mortgage debt by 132% in the past ten years. In the US it was only 110%. $1 in 2000 costs $1.19 in 2010, so inflation only accounts for 14% of the total growth in Canadian mortgages.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
Click Here To Scroll Thru My Recent Post List