I guess we’d all kind of hoped that after everything that happened six years ago we’d have learned our lesson with ‘jumbo loans’ and subprime mortgages. But unfortunately, some people are starting to believe that history is already repeating itself.
Just a little over half a decade that a housing bubble nearly tipped the globe over, the prices of homes in Florida and California have already ascended at a very dangerous rate. The climb is so steep that the real estate listing company, Trulia, has classified a significant chunk of the property in these two cardinal states as being overvalued. Although Florida and California paint a gory image, the other parts of the country can be seen as less bleak or even less shiny, depending on the side of the fence you are sitting.
However, what obtains in America is quite different from what has been observed in other countries of the world. Not too long ago, Nobel laureate Paul Krugman dropped the bombshell – Sweden was in the grip of a property bubble. The Swedish picture is far from rosy as housing prices have said to increase 300% over the past decade. But the government of Sweden does not seem to agree with Krugman, they argue that the cataclysmic combination of poor oversight, astronomical government debts and a very low savings rate that wrecked the American economy in 2008 is not present in their relatively frugal Scandinavian homeland.
If the Swedes have managed to explain their way out of the condition, the same does not apply to the United Kingdom and Canada. In these two countries (particularly in London in the former), the fears of increasing housing prices are just too palpable. In the maple country, the fear is so tangible that some Canadians are already panicky, preparing for an imminent crash later this year. But concerning the Canadian situation, Nouriel Roubini, the economist Nostradamus who predicted the US 2008 crisis years before time said that the Canadian nation really has not much to worry about since their banks are in a much better shape to absorb devastating shocks, than those of the Yanks.
But of all the scary real estate industry monsters abroad, none is as scarily vast as that of China. The Chinese property market is clearly overheating, and this is further encouraged by the steady flow of cheap credit and the practice of valuing assets like apartments over the saving of raw cash.
Some days ago in Shanghai, one of the most respected voices in the Asian real estate sector, Pan Shiyi, the CEO of Soho China described the local market as a ‘Titanic’ that is coasting off to a devastating end. He further stressed that the outcome of such a monumental collapse will not hit only the real estate market but also have fatal ripple effects on the banking sector. All over the globe, from markets in Asia to those of Europe and even North America, not a few are watching with apprehension.
Here in Naples, Florida the real estate market has been looking like it’s making a comeback, but many believe that this is short-lived and is caused by investers. For instance, in the Heritage Bay development in Naples, there have been several condos sold recently for over $200k. The problem with this is, those same condos would have been worth over $300k just a few short years ago. Heritage bay single family homes, however have managed to maintain their value a little better. Even while many homeowners who bought before the bubble are now sitting on negative equity, that’s not typically the case in Heritage Bay.