By Shayla Mars  Wed Jan 8, 2014

Worldwide Housing Bubbles Possible: 5 Countries Susceptible

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Although the economy is slowly recovering, the housing bubble can still happen, and these situations aren’t restricted to America and Europe. Quick increases in housing prices can happen in any country where the economy may be expanding too quickly. Housing bubbles used to be isolated and rare economic phenomena but they are happening closer together than ever before. Economists are specifically watching the follow three countries very closely because these countries are highly susceptible to the same market forces that caused the housing busts in America and Europe.

Brazil

The Brazilian housing market has shown many of the same trends as the United States with its housing market before the implosion. During 2013, housing prices have risen by 188 percent in Sao Paulo and by 230 percent in Rio de Janiero. This is an astronomical increase for one year and unlike anything ever seen in the U.S. It is no shock that the housing market is in bubble territory and this has caused controversy about that country’s housing and economic policy.

For example, economist Robert Schiller, a professor at  Yale University, disagrees with President Dilma Rousseff about her country’s housing market. Most can say President Dilma has done a significant job fueling Brazil’s economy, but seems unconcerned with the startling rise in price. Under her direction, policies limiting the price limit of homes people can buy have been lifted and, starting earlier last year, she poured money into the housing market with federal subsidies and state bank loans.

China

It is no shock that China’s housing market could become a bubble. While the wealthier Chinese buyers seek housing internationally, there is still much demand inside this country of 1.3 billion. Culturally, the Chinese also believe that real estate is one of the safest investments to make in a highly volatile world.

Economist are eying China, although the worry is relatively small in comparison to other countries. While outstanding residential debt popped the U.S. housing bubble, China’s residential debt is still low.

U.S.

If there were ever any doubt of the existence of economic cycles, the current state of the U.S. housing market would prove its validity. It has been over seven years after the housing market bubble burst and the U.S. has seen a revitalization of pricing for houses nationwide. More international interest coupled with a slow resurgence in the U.S. job market has enabled many to secure great deals.

As supply is starting to dwindle and demand is going up, housing prices of course are on the rise. It’s promising that houses are no longer sold at dirt-cheap prices, but could the U.S. be on the verge of repeating its mistakes? Hopefully not, but with the U.S. policy of mortgage-back securities still in play along with people following job industries to new states, the U.S. once again allows homebuyers to take out loans they really can’t afford. Some members of the Federal Reserve have already made their concerns known. One promising aspect is that interest rates are rising in general. However, there is much room for movement there as well.

Australia and New Zealand

Australia and New Zealand round out the top countries to watch for housing bubbles. Discussion of a bubble forming in both countries is already taking place. In Australia’s case, they are seeing more investor lending, than private owner. The concern there is that most of the investors who are just looking to buy and rent are low to middle class and in the event of job recession, those investors may default on their loans.

In order to curb lending, New Zealand created a limit for how much banks can lend. It’s not quite clear yet how these strategies will fair when temptation for lending and buying is very high regardless what economist are finding.

So what could cause a burst? Although international economies are not an exact replica of the U.S., if lending practices are too relaxed and anyone can take out huge loans at low interest there is a risk of default. Too many defaults can result in that debt never being reconciled. Unreconciled debt is dangerous for the economy.

In the event that housing bubbles do form in these markets and they all burst, there’s no telling to what extent how negatively it would impact the global economy.  This is one of the major trends to watch in 2014.

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Related Links:

Housing bubble fears over rising loans to investors

Post financial crisis, recession and slow recovery, the housing bubble is back in US

2014 Offers a Wealth of Housing Markets

 

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