London’s housing market is now the most overvalued in the western world!
At last reading, it was at over 15 times income, well above New York, San Francisco, Vancouver, Sydney and Melbourne. Only property in Singapore and Hong Kong are at 25 times income, and while I consider both to be developed-world cities within emerging-country regions, they still fall under the “emerging market” label.
Without a doubt, London has gone bonkers. Real estate prices there have increased 375% since 1996. They’re up 48% since mid-2009! Those are the kind of increases you typically only see in emerging countries… not developed countries.
How can a key business and financial center like this keep inflating to unprecedented heights when the everyday people who work there can’t even remotely afford such prices?
The short answer is…
The Housing Market is Doomed
The ultra-rich, the top 1%, have garnered most of the gains of this great bubble boom. That’s even more true for the ultra, ultra-rich, the top 0.1% of people who are worth hundreds of millions (if not billions) of dollars.
They have only so many places to park their hoards of money, and they’ve decided the safest place is real estate in the best English-speaking, leading cities around the world.
The problem is, they’re deluding themselves!
They don’t understand the bubbles they’re helping to create in tandem with the aid of unprecedented central bank money printing around the world.
David Stockman, author of The Great Deformation, puts it best (and I’m paraphrasing here): The unprecedented debt and leverage of the past decades, now accelerated by unprecedented QE, is creating a “casino economy” of speculation.
That’s why I asked David to be the keynote speaker at our Irrational Economic Summit this October 16 to 18 in Miami. I could think of no one better to speak in times like these and I’m excited to have him join us. Be sure not to miss it.
London’s housing market explosion certainly has the look and feel of “casino” speculation, as David might put it. Take a look for yourself…
Yet, astoundingly, more and more pundits are arguing that what you see in that chart isn’t a bubble.
I don’t care what idiotic reasons they offer to justify their blindness, the simple truth is: If it looks like a bubble, quacks like a bubble, and walks like a bubble… IT IS A BUBBLE.
Bubbles always go exponential at some point and they always die as a result of their own extremes.
Real estate prices in London in the last two years are now bubblier than they were between 2005 and 2007. In fact, prices have gone up more than 4% in just the last month alone!
Talk about exponential!
Meanwhile, prices in broader England and Wales have recovered modestly. The rebound has been slightly stronger than the one we’ve seen in the U.S., but they’re still below the 2007 peak.
This extreme “recovery” — more like a miraculous resurrection… which I also like to call a bubble — in those key English-speaking cities around the world, where the ultra-rich dominate the top 1%, cannot and will not last.
Sooner rather than later, these people will stop spending ridiculous amounts of money on overpriced real estate.
That’s because their wealth is going to evaporate when the bubble finally bursts. And they’ll bleed that money twice as fast as they built it up. After all, they own around 60% of the financial assets. (In the China real estate bubble, the top 10% own 85%!)
Remember the rich Japanese who took their gains off their stock and real estate investments from the 1980s’ bubble? They used that money to buy real estate around the world, especially in California, New York, and Australia.
When their bubble collapsed in the early 1990s (as I, almost alone, predicted it would), they suddenly stopped buying international real estate. In fact, they had to start selling to protect their home-country assets.
Well, the top 1% flowing into real estate today now face the same fate as their Japanese counterparts of yesteryear.
Foreign buyers dominate real estate purchases in the key cities: 70% in downtown London and 50% in Manhattan. In particular, we’re talking about the rich Chinese, Russians, Middle Easterners, and Brazilians, but rich buyers are certainly not limited to that crowd.
Of the lot, the Chinese are snapping up the prime real estate faster than anyone else. And they stand to lose the most, first, because their real estate bubble is finally showing signs of widening cracks.
When it blows, they’ll be slaughtered.
Then, one after another, the greatest cities will see their most-over-inflated bubbles burst and the fall out will result in a global loss of confidence and money.
Mark my words: the very rich will suffer the worst of the ass kicking in the next two to six years. If you’re one of them, be like the richest man in China, Li Ka-shing (worth over $30 billion), and sell your real estate assets now!
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