Wednesday, 25 June 2008

Three bubbles, three crashes

Three bubbles; three crashes; the US, UK and Ireland are all now seeing their respective housing markets imploding.

Comparisons are always revealing. The US bubble was the most modest, peaked first and crashed furthest. The Irish bubble went higher, and turned downward about a year ago. The UK bubble went on longest, but it too, has turned south.

All three bubbles had the same underlying causes; credit credit, irresponsible banks, and greedy housing speculators.

12 comments:

Anonymous said...

Alice,

To ice the cake, how about you put a fourth line for the Japan bubble of the late 1990s and project the other 3 lines along the same trajectory.

Nick

Alice Cook said...

Nick, I would if I could. If anyone knows where I can find monthly data.

In fact, I would love to find a) Spanish data, b) some Eastern European data (esp. Bulgaria).

Can anyone help? It needs to be excel.

Alice

Anonymous said...

Alice,

If it's of use, there's a graph comparing the US, UK and Japanese bubbles (from the Economist 16 June 2005) on the Wikipedia article "Real Estate Bubble":

http://en.wikipedia.org/wiki/Housing_bubble

Best,

B. in C.

Anonymous said...

I don't think the Japanese bubble is relevant, because there were other bubbles in other countries at that time. It was a different era. I think there are going to be bubbles all over Europe and the Far East. Prices in both France and Italy have been astronomical, but the problem is finding reliable data to back it up. In the US there is an abundance of it and a whole new enterprise has been built up around blogdom, and has probably even assisted in the decline of prices, as more and more people have become educated to the facts.

Anonymous said...

If the average Brit received his news from anywhere other than the Daily Mail or the Sun or crisp packets, then house prices would be crashing now, instead of still teetering. But the average Brit is, when it comes to current affairs, as uneducated as a currant bun. One day it will dawn on Mr and Mrs Brit that they've been well and truly had by the banks and brokers and estate agents--and mass indignation will be rampant, fuelled by none other than the former boosters of the bubble, the Daily Mail and the Sun, etc.

Edward Harrison said...

Well done! Thanks, Alice.

I actually do think that Japan is relevant to the UK and to the US because of monetary policy. The question is what to do in the face of a simultaneous credit crunch and asset bubble. The Japanese scenario gives us a good idea what happens to asset prices when they fall. The question then is how did the Japanese monetary policy contribute to or stop potential problems.

Irrespective of changes, it is very important to use historical analogies as a baseline scenario. The key difference is the savings rate of consumers (MUCH greater in Japan) and the leverage in the corporate sector (MUCH greater in Japan).

Another analogy I am looking at is Scandinavia early 1990s.

Edward

Alice Cook said...

B in C

It has to be my graph! Maybe you won't understand this, but for me, it is a matter of colour coordination.

Nicking someone else's chart would be like taking a roll of your neighbour's wall paper and pasting it into your own living room. It just wouldn't match.

Anyway, thanks for the tip, I will check it out.

Alice

aSteve said...

I like the graph, but wonder about the rationale of rooting everything at 100 in 1996.

I think we can safely say that every market has now turned... would it be more informative to focus on a date at which prices turned in each market - i.e a peek... to concentrate on percentage falls from peek?

Alice Cook said...

asteve, a fair question. Unfortunately, I can't give you a sensible answer.

I gathered the Irish and UK data a few weeks ago, but stopped. Yesterday, I got the case shiller data and went back to the original UK-Irish spreadsheet. For reasons I can't quite remember, these numbers started in 1996. I'll need to look at the original numbers, but I think there was some constraint with the Irish data. I could easily do a UK-US comparision that goes back further.

I might do that in a few weeks.

Alice

aSteve said...

Oh, I think you misunderstand my suggestion... I wasn't suggesting that you hunt down new data (though that is always helpful) I was suggesting an alternate presentation.

I think it would be more enlightening to see the data simply scaled and time-shifted such that 100 represented the maximum price obtained - and time zero is the time when this occurred. This would help to answer the question... Is the same "thing" happening everywhere - just with a different economic lag?

Anonymous said...

Alice,

Of course it has to be your graph - I understand that - I wondered if the reference might lead you through the Economist article to a data source.

B. in C.

RenterGirl said...

A similar bubble is happening in Austrlia, particularly Sydney, I believe.