The real estate bubble scares again the markets

It looks very much year 2007. The cheap money is inflating again bubbles in some of the major real estate markets of the world. The last analysis of “The Economist” doesn’t leave many doubts to us. England, United States, China, Norway and Canada are most at risk. According to the prestigious newspaper there are irrefutable signals and figures that these markets risk to see deflation in the house prices in the coming years.

In Canada, considered the most risky real estate market where you can put your money, the home prices have started to fall in January for the first time in the past five years. Many analysts have pointed the finger at the drop of the oil prices. In fact, in Canada, the production of the oil from the bituminous sands before the drop of the price, has reached record highs, around 4.7 m Bopd. The sector represents 10 % of the GDP and 25 % of the nation exports.

It is true that the tumble of the oil sector in the last six months has had a strong effect in the labor market and also on the real estate demand. However, the prices are too high respect to the incomes. “The Economist” has calculated that house prices are 75 % higher respect to what they must be, for the living standard of this country. The rent prices are also 85 % higher to what The Economist consider fair.

So Canada is considered the most risky nation from the 26 nations that have been analyzed. Similar figures we can find in Norway and China. Norway is a separate case because the country is small and people have high incomes. An explosion of the bubble in this country would have a content effect.

Investors around the world are much worried about a possible explosion of the bubble in China, The country already the second major economy in the world, could suffer very much such a thing. Chinese people are very hungry to buy homes despite the growing prices. This is because of the growing population in the urban areas. This phenomenon is expected to continue in the next years and for the moment is hard to believe that prices there could start to fall.

If money will be cheap for long time, we can expect to see big problems when rates will start to rise. Since it is hard to rise rates because of the fragile economic situation in many countries, the only hope is, that banks will be careful on lending money to everybody. Let’s hope the US case was a good lesson.

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