VOODOO ECONOMICS: The Three “Pillars” of the Latest Dead-Cat Bounce in the Inflated Global Residential Housing Market – This Will End Badly

Source – bullfax.com

“…The three “pillars” of the latest dead cat bounce in the housing market. Recall: “the REO-to-Rental subsidized investment program, which led to an epic surge in demand for multi-family housing, i.e., rental, units was, together with offshore investors parking their cash in the US for safekeeping (taking advantage of the NAR’s anti-money laundering check exemptions) and the big banks Foreclosure Stuffing, the key reason for the recent, stimulus-fueled and quite transitory bounce in house prices in assorted markets.” In other words, the latest artificial move higher in the housing market had nothing to do with an “improving” economy”:

(Foreign Buyers Continue to Inflate Global Residential Real Estate Bubbles – This Will End Badly)

We have frequently talked about the negative future consequences of hot international money chasing “safe” foreign real estate investments.  The recent 2016 Profile of International Activity in U.S. Residential Real Estate published by the National Association of Realtors underscores our concerns perfectly.  A look specifically at the purchasing activity of Chinese investors indicates that while aggregate purchase volume slowed somewhat in 2016, the average price paid per unit continued its meteoric rise to $937k, representing a 20% CAGR for Chinese buyers since 2011 vs.

only 4% for the U.S. market overall, with purchases concentrated in larger markets like California, New York and Texas.
Chinese Purchases of US Residential Property
Major Destinations of Foreign Buyers from China
Other international real estate markets are exhibiting similar issues but seemingly to a much worse degree.  In several Canadian markets, for example, residential real estate prices are up well over 30% YoY through June 2016.

In fact, an average single-family home in Greater Vancouver now costs well over $1.2mm.  Australia, another popular haven for Chinese investment, has also witnessed double digit growth in certain residential real estate markets.
Greater Vancouver Home Prices
Fraser Valley Home Prices
Canadian Market Home Prices
When asked recently about rising home prices and whether certain housing markets in Canada were in a bubble, Central Bank Governor Stephen Poloz responded by saying, “Low interest rates is something we all have in common, and that’s going to cause these things to happen.  The risks are clearly rising…I just don’t know how big the risks are.”
To the extent we can offer any assistance to Mr. Poloz in calculating the risks associated housing bubbles, we would be happy to do so.  It just so happens that we here in the U.S. have a very good, recent case study on what exactly happens when housing bubbles burst.

80% Of All New Home Buyers In Irvine Are Chinese


70% Of Brooklyn Home Sales Are To Hedge Funds, Investors And International Buyers



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