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Urban Property
Breadth of world housing boom stuns analysts
Michele Derus

          The developed world is experiencing its broadest, longest housing price upswing since 1970 - and possibly ever, new research shows.
America is among 17 regions moving in concert through a 10-year housing boom unprecedented by its size, duration, synchrony and independence from historic business cycles, the Organization for Economic Cooperation and Development reported last week
"Real value" gains, adjusted for inflation, range from 24% in Finland to 53% in the United States and 137% in the United Kingdom to 243% in Ireland.
Among what spokesman Mike Kennedy called "the heavy hitters" in the industrialized world, only Japan and Germany, struggling through massive economic upheaval, were left out of the sweeping housing advance.
"We were quite shocked" at the housing boom's scope, Kennedy said in a telephone interview from the government-sponsored group's Paris headquarters. "We have never had such large increases over such a long time in so many places."
It's a happy sign of our globally connected times, said University of Wisconsin-Madison real estate professor Kerry D. Vandell. "This is one manifestation, but as our economies become more interrelated, you're going to see more."
Worldwide mortgage market It's a trend rooted in money markets, said Nicholas Retsinas, director of Harvard University's Joint Center for Housing Studies in Boston. "The people on Wall Street and in London are all looking at the same markets, the same investor pools. In fact, a good part of the mortgage money pool of Fannie Mae and Freddie Mac in our country comes from central markets in China, Taiwan and South Korea," Retsinas said.
The ramifications of a synchronized housing upswing are enormous, said Kennedy, who heads the 30-nation group's general economic assessment division.
While his organization didn't gauge the economic scope of the international flow of money through housing markets, its figures indicate that tens of trillions of dollars are involved.
"This is a global phenomenon, with all these countries' housing markets moving up together," he said. They're not in exact sync, he stressed, since their economies and cultures differ.
Fueling the upsurge, Kennedy said, are low mortgage rates and more flexible credit conditions. The world's bond markets have been awash in money in recent years, and the corporate clients who usually gobble up such money for expansion and improvements have been in a hunkered-down savings mode, he said. Bankers seeking profits have discovered the humble virtues of the homeowner market.
As Kennedy put it: "People rarely default. They'd pretty much do anything rather than lose that house. And that's pretty much true everywhere." Looser lending Lending practices, traditionally tight-fisted in some countries, have changed in the process.
"Getting a mortgage is easier," Kennedy said. "Options have opened up, though not as fast in Europe as in Canada or the U.S. The U.K., for instance, is famous for having short-term variable rates." Most countries have mortgage terms much shorter than America's reliable old standby, the 30-year fixed-rate loan, he said.
While borrowers are taking on more debt, Kennedy said, "it doesn't seem to be putting a lot of stress on households." Homeowner debt has risen, sometimes sharply, but borrowers are meeting their obligations, his group's analysis shows.
In the United States, said Marquette University real estate professor Mark Eppli, "the average homeowner isn't overburdened by debt, although some people on the fringes are. First-time buyers are getting more stressed, especially those affected by rising interest rates."
For most people, the Milwaukee-based professor said, "the wealth effect of recent years provides a cushion."
The cushion won't keep fattening this nicely, Kennedy warned. "The question is, when will it end? We don't know. Economists are terrible at telling you when something will end," he said. Ups and downs Since 1970, the start of his organization's research, the world's developed countries have logged 37 major housing upturns, 24 of which ended in downturns that erased one-third to all the previous inflation-adjusted gains. Neither the United States nor Australia has experienced a major decline, however, its figures show.
Kennedy sees almost no risk of a national "real estate bubble" in this country, currently considered 1.8% overvalued. His colleagues on this side of the Atlantic tend to agree, including Gopal Ahluwalia, vice president of research for the National Association of Home Builders in Washington, D.C.
"We do expect a national slowdown next year. No substantial drop, maybe 5 percent less sales and flatter prices," Ahluwalia said.
Abroad, the outlook is much the same, Kennedy said.
"There are a number of countries that look too pricey," including Australia, the United Kingdom, the Netherlands and Ireland, he said. "But I wouldn't use the word 'bubble' to describe them. Our forecast is quite benign. We may even sail though this oil-price shock. This all may end simply with a leveling off - first of demand, then price."
Rising interest rates may shut out would-be home buyers, or rising prices may turn them off, Kennedy said.
"People could simply say, 'I've had enough. I'd rather rent,' which could be happening already in Australia, where things have leveled off, and in some regions of the United States," he said.


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