	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 17-Jun-05
The worldwide household bubble is still expanding

Web Log - June, 2005

The worldwide household bubble is still expanding

Thanks to a worldwide collapse in mortgage interest rates, housing prices are booming around the world, growing 11% in the last year in the United States, and up to 20% or more in other countries.

The housing boom is related to the fact that 10-year Treasury bond interest rates have been falling, as have been similar bond rates around the world. Mortgage interest rates are set based on the 10-year Treasury bond rates, low interest rates allow home purchasers to buy more expensive houses for the same monthly payment, pushing housing prices up.

Cartoon from Monopoly board game

Cartoon from Monopoly board game

A humorous side note is that real estate prices have gone up so much in London that the Parker game company has issued a new 70th anniversary edition of the game with prices some 10,000 times as high as they were in the original game.

As we discussed a couple of weeks ago, Alan Greenspan and other analysts don't claim to have a clue that explains the conundrum of why long-term interest rates are falling. The only credible explanation is the Generational Dynamics explanation, related to the prediction that we're headed for a major stock market correction and a 1930s style Great Depression.

According to a front page article in yesterday's Wall Street Journal, home prices have been increasing in countries around the world, as shown in the following table:

Rank Country One-Year
Change Three-Year
Change

1 SOUTH AFRICA 28% 95%

2 CHINA (Shanghai)* 27% 68%

3 SPAIN 17% 63%

4 AUSTRALIA -3% 56%

5 NEW ZEALAND 16% 55%

6 UNITED KINGDOM 11% 50%

7 FRANCE 15% 48%

7 IRELAND 13% 42%

9 CANADA 10% 31%

10 UNITED STATES 11% 29%

11 THAILAND 13% 29%

12 SWEDEN 10% 27%

13 HONG KONG 19% 27%

14 HUNGARY(Budapest)* 5% 27%

15 FINLAND 6% 23%

16 EURO AREA 7% 22%

17 GREECE (Ex-Athens) 4% 22%

18 KOREA -2% 20%

19 NORWAY 10% 17%

20 DENMARK 9% 17%

21 TAIWAN 10% 15%

22 NETHERLANDS 5% 11%

23 SWITZERLAND 1% 8%

24 PORTUGAL 0% 3%

25 GERMANY -3% -5%

25 JAPAN -5% -16%

26 BULGARIA 48% NA

27 INDONESIA 5% NA

Source: WSJ

Rank	Country	One-Year Change	Three-Year Change
1	SOUTH AFRICA	28%	95%
2	CHINA (Shanghai)*	27%	68%
3	SPAIN	17%	63%
4	AUSTRALIA	-3%	56%
5	NEW ZEALAND	16%	55%
6	UNITED KINGDOM	11%	50%
7	FRANCE	15%	48%
7	IRELAND	13%	42%
9	CANADA	10%	31%
10	UNITED STATES	11%	29%
11	THAILAND	13%	29%
12	SWEDEN	10%	27%
13	HONG KONG	19%	27%
14	HUNGARY(Budapest)*	5%	27%
15	FINLAND	6%	23%
16	EURO AREA	7%	22%
17	GREECE (Ex-Athens)	4%	22%
18	KOREA	-2%	20%
19	NORWAY	10%	17%
20	DENMARK	9%	17%
21	TAIWAN	10%	15%
22	NETHERLANDS	5%	11%
23	SWITZERLAND	1%	8%
24	PORTUGAL	0%	3%
25	GERMANY	-3%	-5%
25	JAPAN	-5%	-16%
26	BULGARIA	48%	NA
27	INDONESIA	5%	NA
Source: WSJ

At some point the bubble is going to burst, and real estate prices are going to fall substantially.

So-called "analysts" like Suze Orman are going on television telling people not to worry about that. The reasoning is that you can still continue to live in a home even its value goes down substantially, although she does advise converting interest-only and adjustable rate mortgages to fixed rate mortgages.

But the problem is much more serious than these analysts are indicating. If property values go down in a community, then the money available to the local government will go down, causing the people living in overpriced homes to bear a much large real estate tax burden. Numerous other dislocations will occur as well.

Those having a choice should rent for now, and put off purchasing for a couple of years. Those considering selling should do so soon. (17-Jun-05) Permanent Link
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Generational Dynamics Web Log for 17-Jun-05 The worldwide household bubble is still expanding

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Generational Dynamics Web Log for 17-Jun-05
The worldwide household bubble is still expanding