When the Bubble Bursts. Hilliard MacBeth
Читать онлайн книгу.
as Canada’s, and the two bubbles tracked closely until 2006. As mentioned, Robert Shiller received the 2013 Nobel Prize in economics for his work that involved proving that bubbles in many different forms do exist and cannot be explained by random fluctuations. Of course he completed his work long before the global financial crisis but only received his prize after the U.S. housing bubble burst.
As Shiller shows, real estate bubbles in residential housing are a recent phenomenon.[2] He examined housing markets and pricing trends through history back to 1890 and could not find any examples of nationwide bubbles in house prices other than a surge in home prices in the United States and Canada during the decade immediately after the Second World War.
Land speculation bubbles (not housing bubbles) are common throughout history. Those bubbles were usually identified with a particular event or development, such as a Florida land boom and bust in the 1920s, which left new cities built and abandoned within a few years. Land bubbles were isolated to a specific place. As an example, Shiller cites Chicago from 1877 to 1931, when prices increased much faster than the rate of inflation. That was an isolated bubble related to the arrival of the railway. Winnipeg was a major hub of population growth and land speculation at one time for similar reasons. When the Canadian Pacific Railway reached Calgary, speculators made and lost fortunes on the ensuing land boom.
Widespread individual–family home ownership is a relatively recent development dating from the late 1940s. This evolution in home ownership moved closely with the emergence of a large and growing middle class after the war. Shiller’s database of housing prices only goes back to 1890. No earlier index or long-term record of U.S. home prices exists. Apparently nobody cared enough about a national measure of housing as all booms and busts were local, according to Shiller.
U.S. Real Home Prices Flat for 108 Years
The most remarkable fact from Figure 3.1 [3] is how little growth in home prices, adjusted for inflation, there was from 1890 to 2000. The index (U.S. prices) was at 100 in 1890 and today is at about 130, close enough to a zero increase that we can call it unchanged. The index peaked at 198 in 2006. The recent bubble period started in about 1998, when the index was at 115. This action seems to prove the claim by GMO analysts that all bubbles burst and are fully deflated, although it remains to be seen whether “reversion to the mean” is complete, as it is just as likely that prices would fall well below the long-term trend line for a while before starting to trend back higher.
This graph is striking in several ways. The recent bubble in home prices, from about 1998 to 2007, stands out as this spike shows a doubling in prices over a ten-year period while the index remained unchanged after more than one hundred years even though the population tripled from 100 million to more than 300 million.
We can see also that for about twenty years, from 1920 to 1940, there was a distinct slump in prices of homes. So much for the statement that some of us heard many times just before the housing crash that there had never been a nationwide drop in house prices!
Bubbles All Over the World
No one with a weak stomach should dare to take a peek at the housing boom (and collapse) in a country like Spain. Perhaps Canadians will look at Spain and say that it couldn’t happen here. A big push for the boom in real estate construction there came from the insatiable appetite among foreigners for ownership of condos and villas in the sun. Many foreign buyers were German and British.
One of things about Spain that jumps out is the fact that government debt was only 36 percent of GDP before the crisis started, a level identical to Canada’s current federal government debt. Ireland also had a very low government debt burden before the crisis hit and there, too, it was a real estate crash and the need to bail out the banks that pushed the government debt much higher.
During the Spanish bubble household indebtedness rose sharply due to rising housing prices. In fact there are few countries in the world where household debt can rise to unsustainable levels without a real estate boom since the collateral for household loans worldwide is housing. One exception to that would be the student loan crisis in the U.S. where the government backstopped the loans, which have ballooned to more than $1 trillion now. Without a house or a government guarantee backing the loan, banks will not let households or individuals get into large amounts of debt. According to the Spanish ministry of housing, residential real estate prices tripled from 1996 to 2007. That was quite a boom, and it’s an absolutely torrid pace. Figure 3.2 [4] shows that Spanish house prices soared to a peak in 2007 and then corrected almost the whole advance, similar to the U.S. house-price bubble and crash. Whether or not Spain’s difficulties are over remains to be seen; deflation is a real risk in Europe and house prices seldom hold their value in a deflationary environment.
In Spain, as in most jurisdictions, a borrower who defaults must pay the bank back for any deficit that arises on the sale of a foreclosed property. Closer to home in Alberta, on the other hand, the homeowner (under certain circumstances) can just hand the house back to the bank with no residual liability. Some U.S. states allow the homeowner to walk away from the post-foreclosure debt. In Ontario the laws are more onerous; the homeowner (borrower) must pay the difference (deficit) after defaulting. In Spain this requirement has led to protests and squatters occupying empty apartments. According to the National Institute of Statistics in Spain, more than 13 percent of properties are vacant. Of course, extraordinarily high unemployment in Spain forced many borrowers to default on mortgage payments (and even rent payments). Spaniards are reluctant to declare personal bankruptcy since there is no debt discharge. “All the present and future income of the debtor must be used to pay back ... debts.”[5]
In the United States, unemployment rates never reached the highs in Spain and other peripheral European countries of over 25 percent, but the United States still experienced a dramatic housing collapse. The debt levels associated with housing surged and then house prices fell, leaving the borrower to sink underwater — meaning they owed more on their mortgage than the house was worth. As recently as 2011 more than 50 percent of mortgage-carrying homeowners under the age of forty were underwater. Of course the measure of underwater is somewhat subjective as appraisals during a real estate crisis are just estimates. There is no way to know what the house would sell for in a distressed market with so few buyers.
According to Zillow, a company that operates the largest home-related online marketplace in the United States, at the end of 2012 about 27 percent of mortgaged homes in the United States had loans greater than their value, an improvement from 31 percent at the end of 2011.[6] Another 18 percent of homes carried mortgages that were 80 to 100 percent of the home value, which made them dangerously close to going underwater if the market slumped again due to a recession. The housing recovery in 2012 moved a number of homes into the positive column from the negative although it also makes them more likely to be put up for sale, which threatens to slow the recovery in house prices.
These numbers in Spain and the United States are merely statistics to those of us in Canada who are used to consistently rising house prices punctuated by the occasional brief pause or slight decline in the price trend. It can’t happen here, people believe, since it hasn’t happened for more than twenty years going back to the 1990s. But why couldn’t it happen here? It’s obviously happened in the United States and Spain. Are we really that different? As well, it did happen here in the early 1980s and the 1990s, so it could happen again. Or, as the saying goes, “perhaps this time it’s different.”
The U.K. Experience
Figure 3.3 [7] shows that housing prices in the United Kingdom soared to bubble levels as values tripled from 1998 to 2013. This British bubble, like Canada’s, grew to be even bigger than the 2006 peak in the United States. Speaking about his home country of England in March 2014, Roger Bootle, chief economist of Capital Economics, told the Daily Telegraph: “It is easy to persuade people that property is a one-way bet and for speculative behaviour to take hold. This is happening now. It isn’t only about greed. It is also about fear — the fear that if you don’t buy now, you will never be able to afford to. This feeds