Uh-oh

Times Online: Is the global housing bubble set to burst?

"From Alaska to Zanzibar, rich westerners are snapping up what they hope will be bargains in bricks and mortar as local markets have taken off.

In three years house prices have rocketed in South Africa by 95%, in China by 68%, in Australia by 56% and in America and Thailand by 29%. In Britain they rose 50%. The world has never seen a boom of such breadth and scale.

“Eighteen months ago you could have bought a studio in the Jumeirah Beach residence for 40,000 pounds,” said Paul Taylor of Dubai Select, a property marketing company. “Now you could sell it for 150,000 pounds.”

According to estimates by The Economist this week, residential property in developed economies has leapt in value by more than 16,500 billion pounds to more than 38,000 billion pounds, in just five years. That sum is the equivalent to the entire GDP of all the countries in question. Only in Germany and Japan have prices failed to jump over the last decade.

To doubters — who are predicting prices will fall by 20% or more in many countries — it is the gigantic bubble that swallowed the world, bigger than the stock market boom of the 1990s and almost twice the size of the Wall Street bubble of the roaring 1920s.

I've blogged about our dizzying experience with local real estate. I didn't know that the boom is global! What will happen when this bubble bursts? Here's more:

Experience so far suggests that house prices are more likely to stagnate than crash. That is what has already happened in Australia, where a boom has been followed by stable prices for 18 months, although in hotspots such as Sydney double digit falls have been recorded.

As Milan Khatri, head of economics at Rics, summed it up: “It looks like stagnation so long as interest rates don’t rise sharply and we don’t go into recession.”

That, however, is a fine balance since in the Netherlands the stagnation in house prices led to a fall in consumer spending, driving the economy into recession.

Let’s hope the doomsayers, though, are wrong, since the prospect of a meltdown is scary. In Japan, where property was once the most valuable in the world, prices have been falling for 14 years and are now down 40% on their 1991 peak.

It is a sobering thought that in the decade before that peak, the boom in Japan was smaller than the one now happening in America, Britain and elsewhere round the world.