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
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