Playing With Bubbles Part 1: Real-Estate Case-Studies at a Glance – Fitting the Rodrigue Bubble Curve?
September 10, 2010 21 Comments
I’ll start by showing you a picture of what Dr. Jean-Paul Rodrigue of Hofstra University in New York thinks “bubble” psychology looks like in the “real” economic world:
Interesting, isn’t it?
Intuitively, it seems to make sense, don’t you think?
As I don’t have too much time to write much now, i’ll just get to the point and post the rest of the interesting bits…
Now, as I have an interest in the large rises and falls (ie. bubbles) of global housing – and particularly because, being an Australian, I believe that I am living in the largest Housing Bubble in the world in a relative sense – I thought I would post some charts on the City of Perth.
Perth is the capital of Australia’s largest state, Western Australia; it has undergone a resources/mining boom over the past decade or so, and has become a case-study in Australian Housing…though, in “bubble” terms, it is actually not as bad as Sydney and Melbourne…
Anyhow, an acquaintance, “Gim”, from the TalkFinance Forum, posted the trend of Perth House Prices onto the above Rodrigue Bubble Chart, and I chuckled, and just HAD to post it here:
Now, sure, the trend is squashed vertically and horizontally to “fit” the Bubble Chart, but the “fit” really is a bit interesting, isn’t it? Scary even?
And what about somewhere like Canada, which has a similarly resource-strong/based economy, and also is said to have an “enormous” housing bubble, much like Australia? (Note: At the time of writing this blog entry, Vancouver (Canada) has the least affordable housing in the world, and Australia has 6 of the 10 most unaffordable houses in the world!)
Well, I found the following chart, and it does seem to have some strong resemblance to the end of the “Awareness Phase”, the entire “Mania Phase” and the beginning of the “Blow Off Phase”, don’t you think?
What do I think will happen to both the Australian and Canadian Housing Markets? Well, in accordance with my article on Price Discovery, I think inflationary pressures will arise, and among other debt-related factors (such as global instability), deflation will take hold.
Otherwise expressed in my other article on future interest rate movements, I wrote this:
Stage 1: Up (due to “debt feedback” causing consumer price inflationary pressures)
Stage 2: Down (due to national economy GDP recessionary pressures; some loss of confidence in “fiat (paper) money” to begin here (inflationary pressure), but overshadowed by large deflation)
Stage 3: Then Up again (probably very fast and high, due to monetary inflation and tight, reluctant credit conditions, exacerbated by a further, continuing loss of confidence in “fiat money”)
Note: I would now add “global lending factors” to the Stage 1 comments!
I think Australian and Canada are both in Stage 1, and will enter Stage 2 within a year – so I think! (There are, apparently signs that Canadian housing prices are already slowly decreasing; and I can tell you from personal observation that the number of houses that have come onto the market (ie. are now for sale) in the last 6 months in Australia is really quite staggering!)
You’ll notice that in the above quote I said that I thought the USA was in “Stage 2”, as I described it? Well how about we look at a trend of the USA house price data, too, and see how that “fits” (or not) the Rodrigue Bubble Chart?
That does seem to fit to a point, yes? But, IF the Rodrigue Chart is “accurate” here – and I don’t think it was ever intended as a “rule”, but only as a guide – then it is possible that the USA housing market could recover from here…but to me, given the chart, it seems more likely that the USA housing market will continue to “correct” downwards from its multi-decade debt binge. How far? Who knows…..I’ll admit that I do think the USA housing market will continue to suffer deflation for some time, especially given news that their sales of existing houses has hit a 27-year low…ouch…not much of a “recovery”…:(
Oh, and please don’t think I’m making extrapolations based on some “chart” – i’m not; I have many other higher-quality reasons why I think things are heading downward in the short to medium term (such as, I hope, are clear even from what little I’ve already written on my blog so far!). It’s just that the chart is interesting, and, yes, I think validly descriptive from a big-picture point of view…which is exactly what I am aiming for with this blog!
That’s all I could find for the time being; I may add some if i find some more in the future.
Catch you later!